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POLITICAL ECONOMY. 



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THE 



ELEMENTS 






POLITICAL ECONOMY. 



BY FRANCtS WAYLAND, D. D. 

PRESIDENT OF BROWN UNIVERSITY, AND PROFESSOR OF 
MORAL PHILOSOPHY. 



NEW YORK: 
L E A V I T T, LORD& COMPANY. 

183 7. 




,W34 



Entered according to the Act of Congress, in the year 1837, by 

FRANCIS WAYLAND, 

In the Clerk's Office of the District Court of the United States, 
for the District of Rhode-Island. 



^^/^ 



KNOWLES, VOSK AND CO., PRINt. 



PREFACE. 



The following work contains, in substance, the Lec- 
tures on Political Economy which have been delivered, 
for some years past, to the Senior Class in Brown Uni- 
versity. 

When the author's attention was first directed to the 
Science of Political Economy, he was struck with the 
simplicity of its principles, the extent of its generaliza- 
tions, and the readiness with which its facts seemed capa- 
ble of being brought into natural and methodical arrange- 
ment. At the same time, it appeared to him that the 
works on this subject, in general use, while they pre- 
sented its doctrines truly, yet did not present them in 
such order as would be most likely to render them ser- 
viceable either to the general student or to the practical 
merchant. This defect, for the sake of his pupils, he 
endeavored to supply. What he thus at first prepared 
for them, he now offers to the public. In how far he 
has succeeded, it must be left for others to decide. 

His object has been to write a book, which any one who 
chooses may understand. He has, therefore, labored to 
express the general principles in the plainest manner pos- 



vi PREFACE. 

sible, and to illustrate them by cases with which every 
person is famihar. In doing this, he is aware that he 
may at times have become chargeable with repetition. 
Sometimes, the same case may have been introduced a 
second time, for the sake of illustrating a different princi- 
ple. At other times, the same fact may belong equally 
to two different divisions of the subject. In this latter 
case, he has preferred introducing it the second time to 
referring the reader to what has been said before, because 
he believes that readers rarely take the trouble to make 
use of a marginal reference. 

The principles of Political Economy are so closely 
analogous to those of Moral Philosophy, that almost every 
question in the one, may be argued, on grounds belonging 
to the other. He has not, however, thought it proper, in 
general, to intermingle them, but has argued economical 
questions on merely economical grounds. For this reason, 
he has omitted many considerations which are frequently 
introduced into discussions on this subject. For instance, 
on the question of protecting duties, it is frequently urged, 
that, if a contract have been made by the government 
with the manufacturer, that contract is morally binding. 
This, it will be perceived, is a question of Ethics, and is' 
simply the question whether men are or are not morally 
bound to fulfil their contracts. With this question. Poli- 
tical Economy has nothing to do. Its only business is, to 
decide whether a given contract were or were not ivise. 
This is the only question, therefore, treated of in the 
discussion of this subject in the following work. 

It may possibly be urged that the author, having had 
no experience in mercantile business, should have left 



PREFACE. vii 

this subject to be treated of by practical men. To this 
he has only to reply, that principles belong to all men ; 
that there seemed very little hope that this subject would 
be undertaken by men engaged in active business ; and 
that he could not perceive why his doing, as well as he 
was able, a work which seemed to be necessary, should 
prevent any one else from doing it as much better as he 
saw fit. 

It has been to the author a source of regret, that the 
course of discussion in the following pages, has unavoid- 
ably led him over ground which has frequently been the 
arena of political controversy. In all such cases, he has 
endeavored to state what seemed to him to be the truth, 
without fear, favor, or affection. He is conscious to him- 
self of no bias towards any party whatever, and he thinks 
that he who Virill read the whole work, will be convinced 
that he has been influenced by none. While he cherishes 
for his fellow citizens who are engaged in political war- 
fare, every feeling of personal respect, he desires it to be 
believed that he entertains for party itself, whether politi- 
cal, ecclesiastical or social, the opinion which "befits him 
as an American, a Christian, and a gentleman."* 

The first edition of the author's work on Moral Philoso- 
phy, owing to causes which he could not control, was 
unfortunately ver^'" incorrect in typographical execution. 
He hopes that the present work will be liable to no such 
objection. He has given to the correction of the proof 
sheets, all the care of which he was capable ; and in 
the performance of this labor, he has also been able to 

' Col. Huchinson, when speaking in the British Parliament, respect- 
ing the part which he had taken in the Kin^r's death 



viii PREFACE. 

avail himself of the assistance of some of his literary 
friends. To the printers, Messrs. Knowles, Vose & Co., 
of this city, he would also express his thanks for their 
punctuality and fidelity ; and for the interest which they 
have taken, in presenting the work to the public, in the 
neatest and most accurate form. 

In the hope that these pages will be found subservient 
to the best interests of science, and that they may be of 
some practical utility to his fellow citizens, the author 
respectfully submits them to the judgment of the public. 

Brown University, > 
January 16, 1837. S 



CONTENTS 

AND 

PLAN OF THE WORK, 



INTRODUCTION. 

DEFINITIONS AND DIVISION OF THE SUBJECT. 

Page. 

Political Economy, Wealth, - - - - 3 

Value, Intrinsic, - - - " " ^ 

" Exchangeable, - - - - - 5 

Cost, 13 

Production, - - - - - - 14 

Exchange, ------ 15 

Distribution, - - - - - - 15 

Consumption, ^ _ - - - 16 



BOOK FIRST. 

OF PRODUCTION. 
CHAPTER FIRST. 

OF CAPITAL. 

The Nature of Capital, - - - - 20 

The Forms of Capital, - r - vi^- - 21 

The Changes which Capital undergoes, "^fe^ ' ^2 

The Increase of Capital, - - ^ - 24 

Productive and unproductive Capital, - - 26 

Fixed and circulating Capital, - - - - 28 

Money, - _ . - . - 33 



X CONTENTS. 

CHAPTER SECOND. 

OF INDUSTRY. 
PART I. 

THE OBJECTS AND FORMS OF HUMAN INDUSTRY. 

SECTION I. 

The different Objects of Human Industry. 

Change of Elementary form, - - - 36 

" " Aggregate form, ~ - - - 36 

" " Place, - - - - - 36 

General Conclusions, - - - - - 37 

SECTION II. 

The different Forms of Human Industry. 

Industry of Discovery, - - - - - 43 

" " Invention, . . . _ 43 

Operative Industry, - - - - - 44 
Of the Products of these various forms of Human Industry, 46 

The Product of the Operative Laborer, - - 46 

" " Discoverer, - - - 47 

PART II. 

THE MODES BY WHICH THE PRODUCTIVENESS OF HUMAN INDUSTRY 
MAY BE INCREASED. 

SECTION I. 

The Use of Natural Agents. 

Of Natural Agents, - - - - - 55 

Of Tools and Machines, - - - - 55 

Of Natural Agents which create Momentum, - - 57 

Of Animate Agents, - - - - 58 

Of Inanimate Agents, - - - - 59 

Gunpowder, - - - - - 59 
Wind, --.-... 60 

Gravitating power of Water, - - - 61 
Steam, -..-... 62 

The advantages of Inanimate over Animate Agents, - 64 

Of the Natural Agents by which Momentum is applied, 67 

Uses of these Agents, - - - - 68 



CONTENTS. xi 

SECTION II. 

Of Division of Labor. 

Principles on which the utility of Division of Labor depends, 73 

SECTION III. 

Limitations to the Division of Labor. 

From tiie Nature of the Process, - - - 81 

From other Causes, ----- 81 

Capital, - - - - - - 81 

Demand, ------ 82 

Of National Division of Labor, - - - - 86 

SECTION IV. 
Effects of the increased productiveness of Human Industry. 

I. Effect upon Producers, - - - - 92 

Immediate, - - - - - - 96 

Ultimate, - - - - - - 98 

II. Effect upon Consumers, - - - - 103 

CHAPTEH THIRD. 

OF THE LAWS V/HICH GOVERN THE APPLICATION OF 
LABOR TO CAPITAL. 

SECTION I. 
The Conditions of our being, on which the laws on this 

subject are founded, . . . 107 

SECTION 11. 

IndustTij will be applied to Capital, as every man enjoys the 

advantages of his Labor and. Capital. 
As every man may gain all he can, - - 111 

As every man may use his ov\^n as he will, - - 117 

SECTION III. 

Lcdior will be applied to Capital, as every man suffers the 

inconveniences of Idleness, - - - 122 

Poor Laws, - - - - - - 125 

SECTION IV". 

The greater the Ratio of Capital to Labor, the greater 

tcill be the Stimulus to Labor, - - . 128 



xii CONTENTS. 

SECTION V. 

Industry will he applied to Capital, in proportion to the 

Intellectual Condition of a People, , - - 132 

SECTION VI. 

Of the Effects of direct Legislation, as a means of increasing 

Production. 
Production, _ . . . . 140 

Of Protecting Duties, ----- 141 
Of Bounties, - - - - - 149 

Objections Considered, . . . . 151 



BOOK SECOND. 

EXCHANGE. 
CHAPTER FIRST. 

BARTER, OR EXCHANGE IN KIND. 

SECTION I. 

Of the principles in our constitution ivhich give rise to 

Exchange, - - - - - 1G6 

SECTION II. 

General Doctrines of Exchange, 

Of the exchangeable value of Products, - - 179 

Exchange confers no new value, _ . - 133 

Conditions on which frequency of Exchange depends, - 187 

Stagnation of Business, - . _ _ 295 

Effects of legislative enactments on Exchange, - - 198 

Internal Improvements, - - - - 201 

CHAPTER SECOND. 

EXCHANGE BY MEANS OF A METALLIC CURRENCY. 

SECTION I. 

Of the Use of a Circulating Rlcdium, - - - 206 

SECTION II. 

Of the Qualities necessary to that lohich constitutes a Cir- 
culating Medium, - - - - 214 

SECTION III. 
Of the Functions of Money, . . . 221 



CONTENTS. 



SECTION IV. 



Of the Agency of Oovernment, in respect to a Circulating 

Medium, ..... 239 



CHAPTER THIRD. 

OF A CIRCULATION BY MEANS OF A PAPER CURRENCY. 
SECTION I. 

Of the Nature of Banks in General. 

Banks of Deposit and Exchange, . - _ 248 

Banks of Discount, or Loan, .... 259 

Banks of Circulation, or Issue, - . - 262 

Of the sources of the profit of Banks, ... 269 

SECTION II. 

Of the Utility of BanJcs. 

As Institutions of Deposit, .... 271 

" " Loan, - - • - . 274 

" " Circulation, .... 290 

SECTION III. 

Advantages and disadvantages of a Paper Circulation, 292 

SECTION IV. 

Of the agency of Society, that is, Government, in respect 

to a Paper Circulation, ... 309 



BOOK THIRD. 

OF DISTRIBUTION. 

CHAPTER FIRST. 

WAOES, OR THE PRICE OF LABOR. 
SECTION I. 
The General Principles of Wages. 

Of Simple Labor, - - - - - 320 

Of Educated Labor, - . - - 331 

Of the supply of Simple Labor, ... 333 

Of the demand for Simple Labor, ... 335 

Population and Wages, .... 335 

Labor in the Fine Arts, . . . . 345 



xiv CONTENTS. 

SECTION II. 

Of the Special Circumstances by lohick, irrespectively of 

Capital, the wages of labor are affected, - - 346 

CHAPTER SECOND. 

THE PRICE OF MONEY, OR INTEREST. 

SECTION I. 

Of the benefit of Capital to the Laborer, - - 352 

SECTION II. 

Of Risk and Convenience of Investment. 

Of Risk, ...--- 357 

Of Convenience of Investment, - - - - 361 

SECTION III. 

Of the Rate of Interest, as effected by the use of Capital. 

By the average profit of Capital, - . . 364 

" Ratio between Supply and Demand, - ' - 365 

" Freedom of Capital, - - _ . 368 

" Taxation, ------ 369 

" Usury Laws, - - - - - 373 

Of Stocks, - ' - - - - . - 375 

CHAPTER THIRD. 

OF THE PRICE OF LAND, OR RENT. 

Price of Land, or Rent, - . . _ 3^0 

Mines, - - - - - - 396 

Interest of Real Estate, - - - . 399 

Extent of Business, - - - - . 401 

fnsurancc, ------ 404 



BOOK FOURTH. 

OF C O N S U M P T 1 O N. 

CHAPTER FIRST. 

OF THE NATUJIE AND DESIGN OF CONSUMPTION. 
Nature of Con-'^unijition, - - - . 4(39 

Design of Consumption, - - -. _ 413 



CONTENTS. XV 

CHAPTER SECOND. 

OF INDIVIDUAL CONSUMPTION. 

SECTION I. 

Of individual Consumption, for the sake of re-production. 

Of Consumption of Capital, - - - - 420 

Of Consumption of Labor, . - - - 423 

SECTION II. 

Of Consumption for the gratification of Desire. 
Of Consumption for the purpose of self-gratification, simply, 430 
Consumption in respect to the relative Objects of Desire, 434 

CHAPTER THIRD. 

OF PUBLIC CONSUMPTION. 
SECTION I. 

Of Taxes, or the manner in which the public expenditure is 

provided for. 

Of direct and indirect Taxation, - - - 444 

Of the principle by which Taxation should be regulated, 445 

SECTION II. 

Of the purposes for which the Public Revenue is commonly 
expended. 

Of the expenses of Civil Government, - - 452 

Expenses for Public Education - - - - 454 

" " Maintaining Religious Worship, - 459 

" " Internal Improvement, <= - _ 460 

" " Pauperism, . _ - - 461 

" " War, - - - - - 462 

Note on the Precious Metals, - - - 465 



OF 



POLITICAL ECONOMY, 



POLITICAL ECONOMY. 



INTRODUCTION. 

DEFINITIONS, AND DIVISION OF THE SUBJECT. 

1. Political Economy is the Science of Wealth. It 
is sometimes defined the Science of National Wealth. 
This definition seems not, however, sufiiciently compre- 
hensive ; inasmuch as, the laws which govern the creation 
of wealth are essentially the same, whether they are con- 
sidered in respect to man as an individual, or to man as a 
society. 

By Science, as the word is here used, we mean a 
systematic arrangement of the laws which God has 
established, so far as they have been discovered, of any 
department of human knowledge. It is obvious, upon 
the slightest reflection, that the Creator has subjected the 
accumulation of the blessings of this life to some deter- 
minate laws. Every one, for instance, knows that no man 
can grow rich, without industry and frugality. Political 
Economy, therefore, is a systematic arrangement of the 
laws by which, under our present constitution, the rela- 
tions of man, whether individual or social, to the objects 
of his desire, are governed. 

2. Wealth. It has been frequently remarked, that the 
iuniverse around us is composed of objects suited to gratify 



4 OF VALUE. 

our desire, and thus minister to our happiness. The 
rapacity to gratify desire, is, therefore, the first element 
that enters into our notion of wealth. But as the gratifi- 
cation of our desires, by means of an external object, 
almost always supposes some change effected in that 
object ; and, as we could have no right to effect that 
change, unless that object were our own, another element, 
which enters into the notion of wealth, is tlie idea of 
possession. Hence, wealth may be defined any object, 
having the pov\^er of gratifying human desire, which is 
capable of being appropriated. He who possesses many 
of these objects in abundance, is termed rich. He who 
possesses few of them, is termed poor. He who possesses 
a large amount of money, is also called rich ; because, 
with money, he can generally procure whatever else of 
physical convenience he may desire. 

3. Of Value, intrinsic and excJiang'eahle. The par- 
ticular quality in any substance, which renders it capable 
of gratifying human desire, is called its value. Thus, 
that quality of fuel, which constitutes its value, is its 
power of generating heat, or of gratifying this desire in 
man. A particular substance may have the power of 
gratifying either one or several desires, and thus it may 
have either one or several values. Thus anthracite coal 
is at present known to have but one value, namely, that of 
generating heat. Bituminous coal possesses also another, 
as it is also used in the manufacture of gas, for the pur- 
poses of illumination. Wood has several values, inasmuch 
as, besides being used for fuel, it ma}^ also be used for 
building, and for the various purposes of the arts. Iron 
has as many forms of value, as there are uses to which it 
may be applied, in promoting the convenience of man. 

The degree of the value of any substance, depends 
upon the nature and tke number of tlic desires which it 



OF VALUE. 5 

can gratify. If the gratification of that desire to which 
it is subservient, be necessary to the existence or to the 
comfort of man, its value will be great. Such is the case 
with air, water, clothing, food, and fuel. If the gratifica- 
tion which it affords can be easily dispensed with, its value 
will be small. Such is the case with articles of luxury, 
or the means of mere amusement. The inferiority of the 
value of this latter class, is evident from the fact, that, in 
seasons of scarcity, these are first relinquished. And again, 
the degree of the value of any substance, depends upon 
the nutiiher of desires which it can gratify. India Rubber, 
or Caoutchouc, a few years since, was used but for one 
purpose, that of rubbing out pencil marks. It is now used 
in the manufacture of shoes, and for several other very 
important purposes. The intensity of its value is, there- 
fore, greatly increased. 

We have thus far treated only of intrinsic value, or of 
the power which any particular substance possesses, of 
gratifying human desire. 

If, however, we examine the various articles of value 
around us, we shall observe a very remarkable difference 
between them. Some of them may be made the means 
of procuring for us, by exchange, other objects of desire. 
Such, for instance, are gold, silver, iron, coal, wood, &c. 
He who possesses a large quantity of either of these, may, 
ordinarily, procure for himseli^, by exchange, any thing 
else that he needs. Others, on the contrary, and those 
of great intrinsic value, are destitute of this property. 
What has greater intrinsic value than air, the light of the 
sun, or water ? Yet, we can get nothing in exchange for 
air or sun-light, and very rarely for water. And again ; 
substances having an exchangeable value, do not possess 
that value, in proportion to their intrinsic value. Iron 
lias a far greater intrinsic value than gold ; yet, an ounce 



6 OF EXCHANGEABLE VALUE. 

of gold has a far greater exchangeable value than an 
ounce of iron ; that is, an ounce of gold will procure for 
us far more articles of convenience, in exchange. This 
latter property, or the power of procming for us something 
else in exchange, is called exchangeable value. 

If, now, we compare those substances which have not, 
with those which have exchangeable value, we shall find 
them to differ in the following respects : 

1, Those which have no exchangeable value, are every 
where abundant and inexhaustible. The supply of the 
others is limited in quantity^ or is limited in 'place. Air, 
and the light of the sun, are inexhaustible every where. 
Coal is in some places inexhaustible, but it is not so in 
others. Where it lies, for miles together, immediately 
upon the surface, and in beds of unknown thickness, it 
has no exchangeable value. Where it must be carried 
to any distance, to be brought to the consumer, it then 
acquires an exchangeable value. 

2. The value of the first class of substances has received 
no addition from human labor, but derives whatever quali- 
ties it possesses, directly from the gift of God. The value 
of the other, has always received some addition, and, 
frequently, it is derived altogether from human labor. 
Neither air, nor the light of the sun, can receive any addi- 
tional power of gratifying human desire, from any effort 
of man. On the contrary, all the most important values 
of iron, are derived from human skill. A lump of iron 
ore is as valueless as granite or sandstone. The peculiar 
properties of the metal, are the result of the processes 
through which it passes. When, however, a substance 
which ordinarily possesses only intrinsic value, is placed 
under such circumstances that human labor must be added 
to it in order to enable it to gratify desire, it then acquires 



OF EXCHANGEABLE VALUE. 7 

exchangeable value. Thus water, which, ordinarily, has 
no exchangeable value, is frequently sold by the gallon in 
cities, because it can be procured in purity only from a 
distance, and hence, before it can gratify the desire of 
particular individuals, it requires the labor of transporta- 
tion to be added to it. 

We see, then, that every substance on earth may have, 
and, doubtless, it actually has, intrinsic value. If we then 
consider all those qualities which are necessary to prepare 
a substance for the gratification of human desire to be 
intrinsic values, these may be divided into two kinds ; 
first, those which are imparted to the substance by the im- 
mediate act of God ; and secondly, those that are imparted 
to it through the intermediate agency of man. The for- 
mer, being the gift of God, are gratuitously received, and 
gratuitously parted with. The latter have cost human 
labor, and therefore cannot be obtained without an equiva- 
lent. Hence it is the latter alone, that enter into compu- 
tation, in fixing exchangeable value. Thus the exchange- 
able value of iron and of gold, respectively, does not 
depend upon the uses to which these metals may be put, 
but upon the labor which must be employed in preparing 
them to gratify desire. 

Again: Moral Philosophy teaches us, that if a man 
expend labor in the creation of a value, this labor gives 
him a right to the exclusive possession of that value ; that 
is, supposing the original elements belonged to no one 
else. Now, as almost all the qualities which gratify 
human desire, can exist only by the exertion of this labor, 
it follows, that all such objects must have already become 
the exclusive possession of some human being. Hence, 
he who wishes to possess such objects, must either 
himself expend the labor necessary for producing them, 
or else he must procure them by voluntary concession, 



8 OF EXCHANGEABLE VALUE. 

from some one who has ah'eady expended it. But 
he who has expended labor upon a substance, will never 
voluntarily surrender it up, either for nothing, or for that 
which he can obtain without labor. He who makes 
knives, will neither give them away, nor exchange them 
for air, or water, or sun-light. Hence, he who wants 
knives must either make them himself, or else he must 
offer the knife maker, in exchange for them, some value 
which he himself has created. Hence, every man Avho 
desires the means of happiness, must labor to obtain them. 
And, as every man has his preference for some particular 
kind of labor ; and as, moreover, every man can succeed 
better by confining his labor to one thing, than by devoting 
it to twenty things, every man is desirous of exchanging 
the value created by himself, for that created by others. 
So soon as this is the case with any one substance, it then 
has acquired exchangeable value : that is, just so soon as 
other men are willing to give me a value which they have 
created, for that which I have created, then the result of 
my labor has exchangeable value, and not before. 

The degree of the exchangeable value of any one sub- 
stance, depends upon the amount of labor and of skill 
necessary to create that value. No one would exchange 
what has cost him two days' labor, for that which has cost 
another man of the same skill, but one day's labor ; because, 
rather than make such an exchange, he would create this 
second value for himself. I^hus, if a hundred pounds of 
fish could be procured by a day's labor, and only twenty- 
five pounds of venison ; men would exchange, not pound 
for pound, but labor for labor : that is, at the rate of fom- 
pounds of fish for one pound of venison. The amount of 
labor expended in the creation of a value, is commonly 
denominated its cost. This is always the standard by 
which, for long jieriods, the degree of exchangeable value 
may be estimated. 



OF EXCHANGEABLE VALUE. 9 

When, however, we here speak of labor, we speak of 
it as simple labor ; that is, without taking into considera- 
tion the degree of skill which may be combined with it, 
or the other circmnstances which may conspire to create 
variation in its value. These are to be considered here- 
after. We suppose, in the remarks above, that, in all cases, 
labor of the same kind is to be compared together. 

I have said above, that cost forms the standard by which 
the degree of exchangeable value for lo7ig periods is to be 
estimated. Temporary circumstances may create a varia- 
tion from this standard ; and may, for a short time, elevate 
this value above, or depress it below, the cost. These, 
however, can continue to operate but for a short period ; 
the tendency of exchangeable value is always to gravitate 
towards cost. The causes of this variation, we will now 
briefly illustrate : 

' 1. )Suppose, that by the use of better tools, or from any 
other cause, the supply of fish became more abundant, so 
that a man could, by one day's labor, procure two hundred 
pounds instead of one hundred pounds. The hunter would 
not then be willing to exchange as before, since he would 
now rather catch his fish himself. He would demand 
eight pounds of fish for one pound of venison : that is, the 
exchangeable value of fish would fall ; or, in other words, 
it could not procure as much venison in exchange, as it did 
before. But as, in consequence of this reduction in price, 
there would be an increased demand for fish ; that is, more 
persons would want it, and they would also want a larger 
quantity than before, the fisherman would not be obliged 
to exchange at half the former rate, but would be able to 
exchange at a rate somewhere above it ; say, perhaps, six 
or seven pounds for a pound of venison. Thus, both 
parties would be gainers. The fisherman would procure 
more venison ; the hunter more fish, by a day's labor. 
2 



]0 OF EXCHANGEABLE VALUE. 

Thus, a benefit to one, is a benefit to all. And thus Ave 
see, that, other things being equal, the greater the supply 
of any article, the less is its exchangeable value ; that is, 
the less amount of other things, can it procure in ex- 
change. 

Again : Supposing the labor necessary for taking fish 
to be doubled ; so that, by the labor of a day, no more 
than fifty pounds could be procured. The fisherman, 
then, would not sell, as at first, four pounds of fish for 
one pound of venison ; he would rather hunt his venison 
himself. He would offer but two pounds for a pound of 
venison. But as, at this rate, the number of his customers 
would be greatly diminished ; and as every person would 
use less than before, he would find it difficult thus to dis- 
pose of the results of his labor, and would be obliged to 
offer it on more favorable terms, say two and a half, or 
three pounds, for a pound of venison : thus, with a day's 
labor, he would procure less venison, and the hunter less 
fish. That is, the evil would be shared between them ; 
and thus, an injury to one, is an injury to all. Thus we 
see, that, other things being equal, the less the supply, the 
greater the exchangeable value. 

Again : Suppose the labor necessary for procm'ing fish 
remain the same, but that, from some cause, twice as 
many persons desired fish as before. Suppose that every 
person desired five pounds, but that, there was only enough 
to supply half the population with this quantity. Then 
there would arise a competition among the buyers, and he 
who obtained this quantity must obtain it by overbidding^ 
his neighbor. Thus, fish would command a larger amount 
of venison in exchange than before ; that is, the exchange- 
able value of fish would rise, and it would continue at 
this point, until the demand decreased, or, until a sufficient 
number of men devoted themselves to fishing, to furnish 



OF EXCHANGEABLE VALUE. 11 

enough to reduce it to its mean exchangeable value. 
Thus, the greater the demand, the greater the exchange- 
able value. 

And, lastly : Suppose, that, while the labor of taking 
fish continued as before, the number of purchasers was 
from any cause diminished, so that, while there was enough 
caught to supply every person with five pounds, only half 
the population wanted any. In this case, as a large resi- 
due would be left, at the close of every day, on the fisher- 
man's hands, there would be a competition among the 
sellers ; and each one would be desirous of disposing of 
his stock at a diminished price, rather than lose it alto- 
gether. Hence, he would offer to exchange it for a less 
amount of venison than before ; that is, the exchangeable 
value of fish would fall. It would remain at this point, 
until, either the demand arose to its natural rate ; or a 
sufficient number of persons turned their attention to some 
other occupation, to reduce the supply to a level with the 
demand. That is, the supply being the same, the less the 
demand, the less the exchangeable value. 

It is the operation of these principles that keeps the 
supply of any article throughout the world always equal 
to the demand : and, it is surprising to observe, with what 
accuracy this effect is produced. In the largest cities, 
there is always just enough butcher's meat, and vegeta- 
bles, and clothing, to supply the wants of the inhabitants, 
and no more. The moment the price of an article falls 
below cost, it ceases to be produced, until the price rises. 
As soon as it rises above ordinary profit, capital and labor 
are directed to it, and it is produced in sufficient quantity 
to meet the unusual demand. Thus, also, we see why the 
high price of any article is commonly followed by a low 
price of the same article, and the contrary. When the 
price of any article is low, men leave off" this kind of pro- 



la OF EXCHANGEABLE VALUE. 

duction in too great numbers, and hence follows a com- 
parative scarcity of the product which they furnish. 
When the price is high, men rush, in too great numbers, 
into this sort of production, and hence arises a temporary 
glut, and a depreciation of its exchangeable value. 

Again : It will be seen that this variation in the ex- 
changeable value of any article, is dependent greatly on 
its perishahleness. An article which is not liable to be 
destroyed by keeping, will neither fall so rapidly, nor so 
low, by either a diminution of demand, or an increase of 
supply, as one which is, in its nature, rapidly perishable. 
Thus, iron will keep for years, without decay ; and hence, 
its exchangeable value cannot greatly vary, from increase 
of supply or decrease of demand : that is, it is an article 
not liable to great or sudden fluctuation. On the contrary, 
fish, fruits, and articles of this nature, very often, in the 
com-se of a few days, vaiy one or two hundred per cent. 

Another source of variation in the exchangeable value 
of products, is the time necessary for their production. 
When any amount of a commodity may be produced on 
demand, its rise of price will not keep pace with the 
diminished supply ; because, every one will know that, 
by waiting, he can be provided with it at a reasonable 
price. Thus, a small rise of price in a manufactured arti- 
cle, when the material is abundant, will cause the quantity 
produced to be greatly increased ; hence, the rise is never 
excessive. But when a long time is necessary for the 
production of an article, and it is an article of prime neces- 
sity, the rise of price is frequently great. 

And again : It will be seen, that, so far as the seller and 
the buyer are concerned, these variations balance each 
other. When products rise on the merchant's hands, he 
charges an additional price : when they fall, he is obliged, 



OF EXCHANGEABLE VALUE. 13 

frequently, to sell at a reduced profit, or even to sell below 
cost. The gain, in one case, makes up for the loss in the 
other. Hence, as no one sympathizes with the merchant, 
vi^hen he sells at a loss, no one should complain, when he 
sells, for a short time, at more than an ordinary gain. 

If, now, we sum up what has been said, we shall come 
to the following general conclusions : 

1. Cost; that is, labor bestowed; is the foundation of 
exchangeable value, and from this, it can never, for long 
periods, materially vary : that is, an article can always be 
had for what it costs to produce it ; including in this, the 
ordinary profit to the producer. Notwithstanding this, 
there will, however, arise various fluctuations, depending 
upon the following circumstances : 

Other things, then, being equal — 

2. The greater the supply, the less the exchangeable 
value. 

3. The less the supply, the greater the exchangeable 
value. 

4. The greater the demand, the greater the exchange- 
able value. 

5. The less the demand, the less the exchangeable 
value, 

6. And, in general, cost being fixed, exchangeable value 
is inversely as the supply, and directly as the demand. 

7. Or, still more generally, at any particular time, 
exchangeable value will be as the cost, plus the effect 
produced by the variation in supply and demand. 



14 OF PRODUCTION. 

Hence, wealth consists of all objects which have an 
exchangeable value. 

Exchangeable value is slightly distinguishable from 
price. The first, is the power which any object possesses 
of procuring for us any object whatever. The second, 
price, is the power that it has to procure for us one par- 
ticular object ; that is, money. 

Of Production. From what has been said, it is easy 
to explain the nature of Production. It is the act by 
which we confer a particular value upon any object 
whatever, or by which we give to any object its adapted- 
ness to gratify desire. We can neither create nor anni- 
hilate any thing. All that we can do, is, to modify what 
already exists. When we so modify any thing, that it is 
capable of gratifying a desire which before it was not 
capable of gratifying, our so doing is called production. 

The modifications which objects need, in order to render 
them capable of gratifying desire, are various. Sometimes 
the elements of the substance, sometimes its form, and 
sometimes its place, require to be changed. Whenever 
human industry accomplishes any of these results, it is 
called production ; the person who exerts this agency is 
called a producer, and the substance itself, on which this 
agency is exerted, is called a product. 

In some cases, we find the substance, as, for instance, 
ore in the mine, or stone in the quarry, in its natural state ; 
in others, we receive it from those who have imparted to 
it one value, and we add to it another. The material 
which, in either case, Ave obtain for the purpose of com- 
bining it with our own industry, and forming it into a 
product, is called capital; and, after the labor has been 
exerted, and the value created, it is called a product. 



EXCHANGE— DISTRIBUTION. If, 

Thus, the same article may be product to one, and capital 
to another. Leather is the product of the currier, and the 
capital of the shoemaker. 

The term capital is not merely applied to the material 
on which industry is to be exerted, but also to all the 
instru7nents by which human industry is assisted ; as well 
as to whatever is necessary to the support of that indus- 
try. 

Of Exchange. I have said, above, that the mode of 
every man's industry is decided by his individual tastes 
and circumstances. It is commonly, however, confined to 
the creation of one kind of product, inasmuch as it is thus 
vastly more available. His desires, on the other hand, are 
as innumerable as the objects created to gratify them. He 
creates but one value, and he wants a thousand. Hence, he 
can be gratified by means of no less than nine hundred and 
ninety-nine exchanges. He thus parts with various por- 
tions of the value which he has created, for the sake of 
obtaining the values which others have created. Hence 
the necessity of universal and ceaseless exchange. Hence 
the reason why so large a portion of mankind devote them- 
selves to the business of effecting exchanges. Those 
who do so, are called merchants. Those who are em- 
ployed in the transportation of wares or merchandise by 
sea or by land, are all engaged in effecting the same 
object. 

Distribution. In even the very first stages of society,- 
it is found that the productive result of human power is 
greatly increased by union of effort and division of labor. 
Ten men, laboring together, will accomplish much more 
than ten men laboring separately. Specially is this the 
case where the various parts of a process are divided, and 
each one performs that part for which he is best adapted. 



16 CONSUMPTION. 

And, as capital accumulates, it is commonly the case, that 
one who owns the capital, unites in production with another 
or others, who perform the labor. When the product is 
realized, and the gains are to he divided, some equitable 
law is to be adopted, in the distribution. Different labor- 
ers are entitled to different wages : and there are just 
proportions to be observed between the wages of labor 
and the wages of capital. The principles of this adjust- 
ment are treated of by Political Economists, under the 
head of Distribution. 

Cojisumption Suppose, now, the value to be created, 
and brought within the reach of him who desires it ; he 
uses it, and, in the very act of use, its value is destroyed. 
We exchange labor, or money, or wheat for fuel : we use 
the fuel in our fire places, and its value is destroyed. We 
purchase bread ; we eat it, and its value ceases forever. A 
baker purchases flour, and makes it into bread ,• the flour 
ceases to be flour: its value, in this respect, is gone for- 
ever. This act, by which we annihilate any particular 
value, is called consumption. It is exactly the opposite to 
production. 

Sometimes the utility is destroyed, with no other result 
than merely the gratification of desire. Such is the case 
with fire-works, shows, and amusements of almost every 
sort. At other times, the value or utility is destroyed ; 
but it reappears, in another and much more valuable form. 
Thus, a side of sole leather is cut up into soles, for shoes : 
its value, as a side of sole leather, is destroyed forever; 
but its value reappears, in another form, and with an 
increased exchangeable value. The food which we eat, 
disappears ; but its value reappears, in reanimated health 
and vigor, by which we are prepared for subsequent labor. 
The former is termed iwproductivp, the latter, productive 
commmption. 



DIVISION OF THE SUBJECT. 17 

The whole subject of Political Economy, may be there- 
fore divided into four parts. 

The First Part treats of Production, or the laws which 
govern the application of labor to capital in the creation of 
value. 

The Second, or Exchange, treats of the principles 
which govern men, when they wish, by means of their 
own labor, to avail themselves of the labor of others. 

The Third, or Distribution, treats of the laws by which 
those who have united in the creation of a product, receive, 
respectively, their portion of the result. 

The Third, or Consumption, treats of the laws which 
should govern us in the destruction of value. 

Each of these subjects will be treated of, in the above 
order, in the following work. 



BOOK FIRST. 



PRODUCTION. 

It is obvious that when man was first created, there 
-existed nothing but this earth, with its various substances, 
their quahties and relations ; and man, with his various 
physical, intellectual, and moral powers. The difference 
between the 'present state of man and of the universe 
around him, and the origi?ial state, consists in this ; that 
the qualities and relations of things have now been dis- 
covered, and rendered available to the service of man ; 
and the intellect of man has been cultivated, and his skill 
improved, so that he is able, more successfully, to avail 
himself of these qualities and relations. And it is also 
obvious, that this change in the external world has been 
produced by the physical and intellectual faculties of man ; 
that is, by human industry. The whole wealth of the 
world has been created by the union of human indus- 
try with the materials which God had originally spread 
around us. Hence, all that is necessary to the creation 
of wealth, is capital and industry. But, it is also obvious, 
that the application of industry to the materials around us ; 
that is, capital, has not been at all times either equally 
strenuous, or equally successful. There must, therefore, 
«xist some rules, by which this application of industry to 



20 CAPITAL. 

capital is governed, and some conditions under Avhich it 
is more successfully exerted, than under others. 

The subject of Production is, therefore, naturally di- 
vided into three parts. 1st. Capital. 2d. Industry. 
3d. The principles by which the application of industry 
to capital is governed 



CHAPTER FIRST. 

OF CAPITAL. 

First. The nature of Capital. The word capital is 
used in two senses. 

When used in relation to product, it means any sub- 
stance on which industry is to he exerted. After that 
industry has been exerted, it then becomes product. 
Thus, leather is the capital of the shoemaker, and shoes 
are his product. 

When used in relation to industry, however, it has a 
much wider signification. It then signifies the material 
on which industry is about to confer value, that on which 
it has conferred value, and the instruments which are used 
for the conferring of value, as well as the means of suste- 
nance, by which the being is supported whilst he is engaged 
in performing the operation. The capital of an individual, 
if it be examined, will be found to be composed of all these. 
Thus, also, the capital of a nation is composed of raw ma- 
terial, of articles ready to be consumed, of buildings, ships, 



FORMS OF CAPITAL. 21 

manufactories, and also of the various substances, by which 
human hfe is prolonged and rendered desirable. 

Second. The forms of Capital. Hence it must be 
seen, that the forms of capital must be as various as the 
various employments of man. 

1. The Farmer possesses seed, manure, breeding ani- 
mals, &c. 

The Manufacturer possesses cotton, wool, flax, iron, 
leather, wood, and, in general, all the material on which, 
according to his particular calling, he desires to exert his 
industry. 

The Merchant possesses sugar, tea, coffee, iron, &c., or 
the various substances to which, by transportation, he has 
added, or to which he intends to add, value. 

2. But, in order to effect this intended creation of value, 
it is found that intermediate agents must, in all these cases, 
be employed. A farmer could not reap with his fingers, 
nor a miner dig with his hands, nor a manufacturer labor 
without tools. All these instruments^ the use of which 
is necessary to the creation of value, are, therefore, also 
termed capital. 

Thus, the ploughs, harrows, spades, carts, and working 
animals of the farm^er, are a part of his capital. To the 
same class also, perhaps, belongs his land. 

The axes, planes, hammers, of the mechanic^ and the 
buildings and machinery of the manufactm-er, are their 
capital. 

Under this division of capital, may also be included the 



22 CHANGES OF CAPITAL. 

ship of the merchant, the wagon of the teamster, and the 
raihoad and locomotive of the raihoad proprietor. 

3. But, besides all this, all these several persons must be 
fed and clothed, whilst they are exerting the industry by 
which value is given to these various products. Hence, 
under the head of Capital, must be comprehended all the 
various kinds of food, clothing, and houses, which are 
necessary, in order to give sustenance to a human being. 
These are generally the same, in all kinds of industry. 

4. But, besides all this, every individual, in each of these 
departments of human industry, will retain some portion 
of the product which he has created, but which he is ready 
to part with for something else. The farmer has grain, 
which he has raised ; the manufacturer, cloth, which he 
has fabricated ; the merchant, commodities, which he has 
imported, or bought for sale. These form another item of 
capital. 

Third. Of the changes which Capital nndej'goes. 
From what has been already said, it is evident, that capi- 
tal derives its value from labor, and that the effect of labor 
exerted, is to produce some change in it. Hence, capital, 
in every industrious country, must be always undergoing 
changes ; and hence, also, it frequently re-appears, in forms 
very difierent from those in which it at first existed. The 
form, however, is of no consequence, if a superior value 
be the result. Political Economy, unmindful of the form, 
looks only at an augmentation, either of the amount, or 
of the degree of value. 

1. The material undergoes changes. 

The seed and manures of the farmer are changed into 
vegetables, and these again into the grain of the harvest. 



CHANGES OF CAPITAL. 2:? 

The cotton and avooI of the 'manufacturer are changed 
into the fabrics which he produces. The wood and nails 
of the caiyenter are changed into houses. 

The commodities of the merchant undergo changes. 
He exports cotton, rice, wheat, or manufactures ; and 
imports cahcoes, silks, wine, hardware, &c. 

2. The instruments, or machinery, employed by these 
several classes of persons, undergo changes. These seve- 
ral instruments, in the course of production, are gradually 
destroyed, or consumed. The plough and cart, and ani- 
mals of the farmer, the tools of the mechanic, the ma- 
chinery of the manufacturer, and the ships and vehicles 
of the merchant, are worn out and rendered worthless. 
But if they have been profitably used, they have re-ap- 
peared, in the increased value, which they have conferred 
u,pon the various objects upon which they have been 
employed. 

The various kinds of food, clothing, and shelter, neces- 
sary for the existence and comfort of the human being, 
are also changed. They are consumed, from time to time, 
and their value re-appears, in that new vigor imparted to 
his body and mind, which forms a fresh capital, to be 
employed again in the work of production* 

3. And lastly : The mature product of every laborer is 
constantly changing. As soon as he has created a pro- 
duct, he is anxious to dispose of it to some one else, that 
he may invest its increased value in some other material 
which he may again, with increased advantage, unite with 
industry. As soon as the farmer has raised grain or fat 
cattle, he wishes to dispose of them, that he may invest 
their value again in seed, or manure, or agricultural 
improvements. As soon as the manufacturer has finished 



24 INCREASE OF CAPITAL. 

his fabric, he exchanges it for the means of subsistence, 
materials, or machinery ; and so of the merchant, and of 
every other laborer. 

We see, then, that capital is midergoing perpetual 
changes, and that the course of these changes is con- 
stantly from a state of less, to a state of greater value ; 
that is, from a state more remotely adapted to the gratifi- 
cation of human desire, to a state less remotely adapted to 
it ; and that so soon as it has become precisely adapted to 
this gratification, its change ceases, and it is consumed in 
some mode or other. And if it be profitably consumed, it 
again re-appears, in some form adapted to create a further 
increase of the means of enjoyment. And hence we see, 
that, that country is the most prosperous which is the 
most rapidly accumulating, by the results of its labor, the 
greatest amount of the ultimate products, in proportion to 
its number of inhabitants. The greater the share of 
these products which falls to the lot of each individual, 
the greater are the means of physical happiness in his 
possession. 

Fourth. The increase of Capital. In all these changes^ 
which we have considered, it is always to be remarked, that 
there is, in the very act of change, a destruction of value. 
He who changes iron into steel, consumes the iron, destroys 
that particular value, and creates another in its place. He 
who sows wheat, destroys the value of that wheat, for 
food ; and he who spins cotton, destroys the value of 
cotton wool as cotton wool. That is, neither of these 
substances can ever be used again for the purposes to 
which they were before adapted. If, however, the 
industry of the laborer have been skilfully directed, the 
product will have acquired an exchangeable value suffi- 
cient to replace the original material in additional quan- 
tity, and also to repay him for his labor, and pay the 



INCREASE OF CAPITAL. 26 

the interest of his capital. The amount of difference 
between the exchangeable value of his original material, 
together with his labor and the exchangeable value of his 
product, is his profit. The annua.1 amount of these profits, 
is his annual gross revenue. The annual amount of these 
profits in a nation, is the gross national revenue. 

It is obvious, that it matters not in what form capital 
re-appears, if it only re-appear in a form bearing a greater 
exchangeable value. The smith exchanges gold or silver 
for coal ; he burns up this coal, and nothing is left but 
ashes. But it has produced an invisible substance, called 
caloric, by means of which he has been able to give such 
an increased value to iron, as will not only replace his 
gold and silver, but also the iron itself, and will also pay 
him for his labor. The farmer exchanges his gold or 
silver for manure, but this manure will so increase his 
harvest, that he will be able to replace his gold and silver, 
and also be abundantly repaid for his labor. The prin- 
ciple is the same, in all cases of change of capital. It 
matters not into what we change our capital, nor how 
valuable the substance is that is exchanged, if we only 
receive, in return, a greater amount of exchangeable value, 
or that which will procure for us a greater amount of 
objects of desire. 

We see, hence, in what manner nations and individuals 
grow rich. It is by uniting the industry of this year to 
the capital of last year, and, by this process, creating an 
augmentation of capital. This augmentation will be 
either greater or less, in proportion as our industry has 
been successful in giving additional value to that value 
which previously existed. If we destroy a value, and 
produce only another simply equal to it, we lose our 
labor. If we destroy a value, and reproduce nothing, we 
lose both labor and capital. It is only as the value cre- 

4 



2G OF PRODUCTIVE AND 

ated is superior to the value of labor and capital employed, 
that we are enriched. Hence we see, that wealth is 
acquired by small, but oft repeated accumulations. The 
gross amount of these accumulations will be decided by 
our skill and industry. But, as from these our various 
expenditures must be subtracted, our nett revenue will 
depend, not only on our skill and industry, but also on 
om* frugality. Though a man earn much, yet, if he 
spend all, he will grow no richer. Hence, industry and 
frugality are the great sources of wealth. Nor is this 
the less true of nations. Hence it is, that wars, unneces- 
sarily expensive governments, or high taxes for whatever 
purpose, may keep the most enterprising and industrious 
nation always poor. 

Of Productive and Unproductive Capital. Productive 
capital is that, which, being in any manner united with 
industry, is in the process of augmentation. Unproduc- 
tive capital is that, which, not being united with indus- 
try, remains, at the end of the year, just the same as it 
was at the beginning. Money at interest, capital under- 
going the various transformations effected by industry, 
tilled land, and manufactories in operation, are productive 
capital. Money lying in coffers, materials unsaleable, 
manufactories unoccupied, and land lying waste, are 
unproductive capital. 

When capital is unproductive, it may be considered as 
losing for us, annually, its ordinary rate of interest ; 
because it must have been purchased with that which 
would have yielded that interest. Hence, although we 
still own the principal, if it remain long unproductive, its 
annual losses may amount to as much as though we had 
lost it all at the beginning. Hence it is, that every sound 
economist is anxious to have the whole of his capital 
productively invested. He who acts otherwise, is igno- 



UNPRODUCTIVE CAPITAL. 27 

rant of the principles of production, indolent, or slovenly. 
The farmer who allows a heap of manure to lie in 
his farm yard for a year, instead of spreading it on 
his land ; the merchant who allows his ships to lie idle, 
or his goods to be scattered, unsold, over several ware- 
houses ; or the manufacturer who owns twice as much 
machinery as he is able to employ, are annually losing all 
the accumulation which this capital, properly invested, 
would produce. And still more, as we have seen that all 
gains are by small and successive accumulations, it is 
manifest that habitual negligence of this sort must greatly 
diminish, if it do not entirely consume, all the nett revenue 
of an establishment. The effort of every man should be^ 
to unite every fraction of his capital with industry, and 
to keep it so united, continually. Any gain, even the 
.smallest, if it be sure, is better than no gain at all. 

From what has been said, it is evident that the process 
of accumulation, in all branches of production, is the same. 
It will also appear, that where capital is free, that is, where 
there are no restrictions upon the use of it, there can be 
no great permanent difference in the rate of accumulation, 
between the different modes in which it is employed. If 
the profits of one kind of business are above the average 
rate, other capital will flow into that channel. If the 
profit in any branch of production be below the ordinary 
rate, capital will be withdrawn from it. If commerce be 
unusually lucrative, men will leave other pursuits, and 
devote themselves to commerce, until, by competition, 
they reduce the profits to the ordinary rate. If commerce 
be depressed, men will leave it, until, by the reduction of 
the supply of commercial facilities, the rate of profit is in- 
creased. Sates of profit cannot be rendered permanently 
luiequal in any other manner, than by oppressive legisla- 
tion. The differences in profit, in the various depart- 
ments of industry, are, therefore, more apparent than real. 



28 OF FIXED AND CIRCULATING CAPITAL. 

When profit is sure, it is of course less than when it is 
uncertain. But, how much soever individual cases may 
differ, it will be found that the average is, for long periods, 
very nearly equal. 

Of Fixed and Circulating Capital. The capital from 
which the owner derives profit only by exchanging its 
form or place, is circulating capital. Thus, the wares of 
the merchant, the products of the manufacturer, the har- 
vests of the farmer, are circulating capital. On the other 
hand, the instruments which each of these producers uses, 
in performing his various operations, are fixed capital. 
Such are the ships and warehouses of the one, the ma- 
chines and buildings of the other, and the tools and land 
of the third. 

The amount of fixed capital employed in some branches 
of industry, is much greater than in others. Some me- 
chanical trades require no more fixed capital than a cheap 
set of tools. Others, as large manufacturing establish- 
ments, require a large fixed investment. In proportion 
to the amount which must be thus employed, must be the 
amount of accumulated property necessary to be possessed 
by him who wishes to employ himself in that particular 
department of industry. Sometimes, by far the greater 
part of the investment is fixed capital, and is also very 
great in amount. In this case, it is frequently appor- 
tioned among individuals, who each subscribe and pay a 
part of the cost. Such is the case with railroads, canals, 
and works of public improvement, generally. 

It will be seen, from what is here said, that circulating 
capital is, in general, that which is already prepared for 
the gratification of human desire, or that which is in a 
.course of preparation for this state. Fixed capital, in 
■general, consists of the instruments, or fixtures, which, ii) 



OF FIXED AND CIRCULATING CAPITAL. 2'J- 

some form or other, assist us in accomplishing this result. 
Tools, machinery, houses, ships, roads, canals, and im-„ 
provements on farms, &c., are fixed capital. Circulating 
capital is generally rapidly consumed. It is commonly 
an annual product, and subject to an annual consumption. 
Fixed capital is not an annual product, and may last for 
a year, a life time, or indefinitely. It is, however, still 
liable to gradual decay, which decay must be replaced, 
or else the possessor would find himself growing poorer, 
inasmuch as these tools and machinery are the means by 
which his labor is rendered productive. 

But besides this, there is an obvious tendency, in the 
nature of things, to convert circulating, into fixed capital. 
As circulating capital is annually consumed, it must be 
annually replaced, or mankind, after the first year, would 
all perish. It is replaced by the annual productions of the 
earth, either vegetable, animal, or mineral. But, if the 
industry of man has been successfully exerted, the amount 
of annual production will be sufiicient, not only to supply 
the ordinary wants of the producers, and to repair the 
waste and wear of fixed capital, but also to leave a sur- 
plus unappropriated. Now, as this kind of capital is 
annual, and as it is also perishable, if it be not vsed in 
some way, this surplus must be a total loss. If it be 
appropriated to the multiplication of annual capital, it will 
only increase that surplus, which is already too great. 
Hence, it can be usefully employed only in the creation 
of fixed capital. To accomplish this result, it is off'ered 
in the form of wages, to mechanics, artisans, and those 
persons who employ themselves in the manufacture of 
those articles, in which fixed capital consists. Hence, 
the wages of this class of persons will rise, and a portion 
of them will be drawn from the production of circulating 
capital. This might at first be supposed to diminish the 



30 OF FIXED AND CIRCULATING CAPITAL. 

amount of circulating capital. Such would be the result, 
were it not for the fact, that the very object of fixed capi- 
tal, is, to enable us to create circulating capital, with a 
less amount of labor. A society, in which a part of the 
members are devoted to the making of useful machines, 
will create a greater amount of annual products, than one 
in which all are devoted exclusively to the creation of 
annual products. Thus, in a short time, the annual sur- 
plus is greater than before, and a greater number of per- 
sons is employed in creating fixed capital, and that kind 
of fixed capital, which involves, in its creation, a greater 
amount of expense. It is thus tha.t a society, age after 
age, grows rich, and each successive race of men leaves 
the world more richly provided \viih the means and 
facilities of production, than it found it. 

This may all be illustrated, by a few very familiar 
instances. A savage, who obtains peltry by his bow and 
arrows, having provided enough for the food and clothing 
of his family, will, if he be industrious, possess a surplus 
which must now be useless to him. He would naturally 
exchange his surplus for a rifle ; a kind of fixed capital, by 
means of which, his circulating capital Avould be greatly 
increased. This increase of capital would enable him, 
besides procuring better clothes and more annual con- 
veniences, to add to his fixed capital by purchasing a 
horse, or a plough, or by erecting a house. These, in 
their turn, would augment his circulating capital ; and 
thus, with every year, his fixed and circulating capital 
would steadily increase. Hence, very soon, there would 
arise a demand for the services of men who employed 
themselves in creating fixed, instead of circulating capital. 
That is, mechanical arts would be practised ; and the 
artisans would be, as we find that in such a state of 
society they always are, exorbitantly paid for their labor. 



OF FIXED AND CIRCULATING CAPITAL. 31 

Again : Suppose a farmer enters upon new and nntilled 
land. His first care is to produce the necessities of life, 
for himself and his family. When this is accomplished,, 
he appropriates a part of his labor to creating fixed, instead 
of annual capital : that is, he erects fences, purchases carts 
and animals with his produce, builds barns and outhouses, 
and thus renders his farm a much more productive instru- 
ment than before. With his increasing surplus, he pur- 
chases more land, if he needs it, and brings it all into 
such a state of cultivation as he thinks desirable. By all 
these means, his annual surplus is rendered greater, and 
he is enabled to extend the amount of his fixed capital, 
by building a better house, purchasing better ploughs, 
harrows, carts, and various machines by which his future 
labor will be rendered more productive. But we see that 
this could not be done by the farmers of a neighborhood, 
unless some portion of them abandoned farming, and de- 
voted themselves to the creation of fixed capital. There 
would, therefore, arise a great demand for mechanical 
labor. And as there would hence arise the necessity for 
a great number of exchanges, some portion of the society 
must devote themselves to effecting them ; that is, must 
become merchants. In this manner, circulating capital 
first gives rise to fixed capital, and fixed capital increases 
again the amount of circulating capital ; and thus they go- 
on, year after year, mutually augmenting each other. 

Thus, also, the merchant, whose business it is to aug- 
ment the exchangeable value of a given amount of circu- 
lating capital by transportation and exchange, produces, 
by his operations, an annual surplus. This he adds to 
his former capital, for a while, but soon purchases fixed 
capital, as ships, to facilitate his operations. When he 
has enough of these, and as large an amount of circu- 
lating capital as he wishes to employ, he then begins to 
invest his surplus in some permanent works of public 



"32 OF FIXED AND CIRCULATING CAPITAL. 

improvement, as bridges, roads, canals, or in something 
which, besides facilitating the productiveness of the 
society, will also yield him a revenue, or else he employs 
it in manufactures, according to the condition of the 
country, and its natural demands and facilities. 

From what has been remarked above, we may easily 
see the natural coiu'se which a nation takes, in its pro- 
gressive accumulation of wealth. Its first productions 
are, circulating, or annual capital ; the products of the 
field, of the forest, or of the ocean. Next follows im- 
provement in permanent conveniences, and the construc- 
tion of instruments for agricultural production ; then the 
exchange of its own products for other circulating capital, 
or for the annual necessaries of life ; and then the ex- 
change for fixed capital of the most necessary kind. 
Thus, the Dutch, on their first settlement in this country, 
used to import their bricks from Holland. Commerce 
being thus commenced with an older country, they soon 
engage in it themselves, and invest a large portion of their 
annual surplus in ships. Before manufactures had com- 
menced in this country, previously to the Revolution, the 
commerce of the colonies had become already extensive. 
All these prepare the way for the investment of capital in 
manufactures, which, in their proper and natural time, 
'must he established ; and when that time arrives, they 
-ioill he established, without the aid of legislative enact- 
ment, and by the very laws by which accumulation is 
governed. 

From what has been remarked, we also see that the 
advantages which we enjo]^ over savage nations result, 
principally, from the possession of a greater amount of 
fixed capital ; or, in other words, the permanent results of 
]jre-exerted industry. That advantage consists in this, 
that this capital, besides affording to its owners the ordi- 



OF MONEY. 33 

nary rate of profit, enables men to produce at a much 
cheaper rate ; that is, at a less expense of labor. Thus, 
a cotton factory, besides affording a fair profit to the 
owner, enables him to do, by one hour's labor, what 
would otherwise require the labor of days or of weeks. 
By all this difference, therefore, we have the advantage 
over savages, or over those who went before us. Hence, 
a nation, which does not possess the results of pre-exerted- 
industry, must be poor, unless its natural advantages 
enable it to avail itself of those of other countries. 

Hence, we also see the reason why the traffic between 
savage and civilized nations is so greatly in favor of the 
latter. The latter are enabled to ofli"er in barter what is 
of inestimable value to the savage, but which the civilized 
man can produce with a very small portion of labor. An 
axe would cost a savage the labor of weeks or of months, 
while a smith in New England would make it in a few 
hours. Hence, it is not wonderful that the one should 
be willing to give for it vastly more than it cost the other. 
And, on the other hand, the commodities of the savage 
are of very little value to him, but of high value to the me- 
chanic or artisan. Hence, the gain to him also is great. 
An Indian who exchanges peltry, which is worth in New 
York fifty or one hundred dollars, for a rifle, powder and 
bullets, has improved his condition, by means of the pur- 
chase, really more than the gunsmith, who has made so 
exorbitant a profit. 

Of Money. It will be observed that, thus far, I have 
not mentioned money as an item of capital. Although 
this is not the place in which to treat of the functions of 
money, yet it may be proper here to add a single remark 
concerning it. 

Money forms but a very small part of the capital of any 
5 



34 OF MONEY. 

country. Every one may easily judge of this, from his 
own observation. How very small a portion of any one's 
possessions is in money. And if this be true of every 
individual separately, it must be so of all the individuals 
collectively. 

The sole use of money, is to facilitate exchanges. It 
is an instrument for the saving of labor, and for the per- 
forming of labor with greater accuracy. Of this, any one 
may convince himself in a moment, if he will imagine two 
cases, in the one of which he was obliged to make several 
exchanges without money, and the other in which he 
could make them with it. 

Money gains nothing by exchange, but rather loses in 
value, like every other machinery which is worn out 
while it accomplishes its object. Hence, it belongs to the 
class of fixed capital. It is subject to slow wear, which 
must be replaced out of the circulating capital of the 
country. 

And, hence, as any country may have a greater amount 
of any particular kind of fixed capital than it needs, as, 
for instance, of any particular kind of machinery ; and as, 
when this is the case, it sends it abroad, or in other words, 
makes it an article of export, or changes it into circulating 
capital, so is it with money. If a country has more money 
than is sufficient to accomplish its exchanges, it sends it 
abroad, and receives back something that it needs more. 
Such is, permanently, the case in mining countries ; and 
such is, temporarily, the condition of almost every com- 
mercial nation. 



CHAPTER SECOND. 

OFINDUSTRY. 

Having, in the previous cliapter, explained the nature 
and changes of Capital; we nov^ proceed to treat of 
Industry. In doing this, we shall consider : 1st. The 
different ohjects of Human Industry. 2d. The forms of 
Human Industry ; and, 3d. The modes by which the 
productive power of Human Industry may be increased. 

PARTI. 

THE OBJECTS AND FORMS OF HUMAN INDUSTRY. 



SECTION I. 

THE DIFFERENT OBJECTS OF HUMAN INDUSTRY. 

It has been seen, in the previous chapter, that the 
increase of capital ; that is, the means of physical happi- 
ness to man, can be effected only by producing change, 
of some kind, in capital. But it is evident that this change 
cannot be produced without labor, since no valuable change 
is spontaneous. Hence, the great object of human indus- 
try is, to produce some valuable change in capital. 

Now, the changes which may be produced in the sub- 
stances of nature, may all be reduced to three ; change 
in \hQ elemjentary form,., change in the aggregate form., 
and change in place. To effect one or the other of these, 
all valuable human labor is directed. 



36 THE OBJECTS OF HUMAN INDUSTRY. 

1. Man may change the elementary form of matter. 
The farmer, hy means of seed, manure, and cuhivation, 
aided by the agencies of the sun and the earth, of rain, 
and the atmosphere, transforms the elementary forms of 
carbon, gases, and water, into wheat. The chemist 
changes the elementary forms of acids and alkalies into 
salts. The dyer changes the elementary forms of iron 
and tannin into coloring matter ; and the case is the same 
with the various other forms of human occupation. 

2. Man may change the aggregate form of matter. 
The cabinet-maker changes the form of a board into that 
of a desk or a table ; the smith, a piece of iron into a horse 
shoe or a nail ; the mason changes a pile of bricks and 
mortar into a wall ; the cotton spinner, a bale of cotton 
into thread ; the weaver, this thread into cloth. And, in 
general, the labor of inechanics and manufacturer^ is em- 
ployed in eflFecting changes in the aggregate forms of 
matter. 

3. Man may change the -place of matter. Thus, the 
shipmaster transports a cargo of cotton from New York to 
Liverpool, and brings back a cargo of cotton goods, of 
crockery or of hardware. The teamster receives a wagon 
load of merchandise in one town, and transports it to 
another. The owner of a canal boat receives manufac- 
tured goods in Albany, transports them to Buffalo, and 
brings back to Albany, in return, a freight of agricultural 
produce. The agent of a railroad receives a hundred 
boxes of merchandise in Manchester, and transports them 
to Liverpool. And thus, also, a large number of the inhab- 
itants of every populous town derive their subsistence, 
and frequently grow rich, simply by transporting wares 
and merchandise from one part of the town to another. 

These divisions, in general, correspond with the agricul- 



THE OBJECTS OF HUMAN INDUSTRY. 37 

tiiral, mechanical and commercial departments of human 
industry. I have adopted a different terminology, simply 
for the reason that it seems to me to form a more generic 
and better limited division, and one more conformable to 
the facts in the case. 

1. Concerning these divisions, it is proper to remark, 
that, though these are the various objects of human indus" 
try, yet it frequently happens that, he who labors in one, 
is also obliged to labor in one or both of the others. Thus, 
the farmer who raises a crop, is obliged to transport the 
seed to the field, and frequently to transport his harvest 
to market. The cabinet maker who manufactures a 
table, may transport his materials from the lumber yard. 
The engineer, on the railroad, is obliged to change the 
elementary form of wood, in order to produce the caloric, 
necessary to move his locomotive. We designate the 
class of laborers to which a man belongs, by the ultimate 
object which he has in view, in exercising his profession. 

2. Each one of these forms of industry is equally impor- 
tant in conferring . intrinsic value upon substances; that 
is, in giving them capacity to gratify human desire. Thus 
we see that the ore in the mine has no power to gratify 
desire, until it is made into iron or steel. The steel is 
valueless for the purpose of cutting, until it is transformed 
into a knife, an axe, or some cutting instrument ; and, if I 
want to make a pen in New York, a knife is utterly value- 
less to me for this purpose, while it remains in Sheffield 
or Liverpool. Unless these several values are all conferred 
upon it, it would be of no service to me. Hence, in pur- 
chasing a knife, I pay for them all, and do it willingly. 

3. Hence we see how incorrect is the notion sometimes 
advanced, that all wealth is the production of one or of two, 
and not of all these forms of human industry. All these 



38 THE OBJECTS OF HUMAN INDUSTRY. 

changes must be effected in almost every article which we 
consume, and if either of them Avere to be suspended, our 
desires would not be gratified, and the other two must also 
be discontinued. He who transports flour, performs an 
act of as essential importance to the sustentation of the 
human race, as he who raises wheat. He who brings a 
knife from Liverpool to me, performs a labor as important 
to me, as he who manufactures the knife ; for, if it Avere 
three thousand miles off, it might, for all the purposes for 
which I want it, as well not be in existence. And yet 
more, if the one should cease, the others must soon cease 
with it. Of what value would wheat or wool be to the 
farmer, if they could not be transported from his farm ? 
And again : what gain could be derived from either, if 
there were no means of grinding the one, or of manufac- 
turing the other ? Hence we see that all the forms of 
industry mutually support, and are supported by, each 
other ; and hence, also, we see that any jealousy between 
different classes of producers, or any desire on the one 
part, to obtain special advantages over the other, are 
unwise, and, in the end, self-destructive. The fact is, 
that if left to themselves, they all flourish, and they all 
suffer together. Nor can either one be depressed, for any 
considerable period, without injuriously affecting both the 
others. 

These various forms of human industry enter, in differ- 
ent degrees, into the value of different articles of use. 
For instance, butchers' meat and green vegetables derive 
almost their whole value from the first kind of labor, 
as they require very little modification, and will bear but 
short transportation. On the contrary, salted provisions 
may , derive a large portion of their value from change of 
place. Clothing, cutlery, and Avhat are commonly de- 
nominated manufactures, derive the greater portion of 
their value from change in the aggregate form. The 



THE OBJECTS OF HUMAN INDUSTRY. 33 

original material constitutes, in general, but a small part 
of their price, and, not being of great bulk, their trans- 
portation is not very expensive. The steel that would 
make a pair of razors, and the cost of transporting them 
from Sheffield or Paris to New York, would form but a 
very small portion of their price. On the contrary, bulky 
articles, such as coal and iron, derive a very large portion 
of their cost from transportation. Coal, that has scarcely 
any exchangeable value in the coal mines of Pennsylvania, 
is sold for eight or ten dollars a ton in Providence. And 
all the labor employed upon it, is that necessary for break- 
ing it in pieces, and removing it from its bed to the house 
of the consumer. 

As, however, the human race is scattered over the face 
of the globe, and as their wants in all latitudes are so 
nearly the same, Avhile no country affords facilities for 
supplying more than a very small number of these wants, 
it is evident that the labor employed in change of place 
must, in civilized countries, be the most universal, and 
must enter essentially into the greatest number of com- 
modities. Of this every one will be convinced, who will 
take any article of dress, of furniture, or of food, and con- 
sider the amount of transportation that has entered into its 
production ; and, specially, if he take into account the 
transportation which has entered into the formation of the 
instruments by which it has been produced. The same 
truth is also illustrated by the fact, that whole nations, 
with very small natural advantages, as Holland and 
Venice, have, in a short period, become immensely rich, 
merely by conferring change of place on the merchandise 
and productions used by other nations. Water communi- 
cation, in the early stages of society, greatly diminishes 
the cost of transportation, and, of course, increases the 
facilities of exchange. It is on this account that the first 
settlements of nations are always either on the shores of 
the ocean, or along the banks of navigable rivers. 



40 THE OBJECTS OF HUMAN INDUSTRY. 

It may also be worthy of remark, that, thus far, in the 
progress of society, the ingenuity of man has been more 
successful in devising means for increasing the productive- 
ness of labor in the second and third, than in the first kind 
of human industry. Improved agricultural utensils, a 
better knowledge of the nature of soils, and of the differ- 
ent kinds of grain and edible vegetables, and of manures 
have added considerably to the quantity of product that 
can be raised by a given amount of labor. But this in- 
crease bears no sort of proportion to that effec>ted by the 
use of machinery in the case of the cotton manufacturer, 
the use of locomotive and many other forces. It is, 
doubtless, wisely ordered that it should be so. Agricul- 
tural labor is the most healthy employment, and is attended 
by the fewest moral temptations. It has, therefore, seemed 
to be the will of the Creator that a large portion of the 
human race should always be thus employed, and that 
whatever effects may result from social improvement, the 
proportion of men required for tilling the earth should 
never be essentially diminished. It is also to be remarked 
that division of labor, which so greatly increases the pro- 
ductiveness of human industry in the other modes of 
production, can be applied but in a small degree to agri- 
culture. No man can devote himself exclusively to 
ploughing, sowing, or reaping ; because, only a small part 
of the year can be employed in either of these occupations. 
The farmer must, therefore, practise them all, at different 
times; and, of course, every farmer must be able to perform 
not one, but all the several operations required in his trade. 
This forms another reason why the increase of productive- 
ness of human industry, in this department of labor, has 
not kept pace with that which has been witnessed in 
manufactures and commerce. 



SECTION II. 

THE DIFFERENT FORMS OF HUMAN INDUSTRY. 

Industry, is any form of human exertion employed for 
the creation of value. This, of course, includes exertion, 
both of body and of mind. 

The object of industry, as we have seen, is to produce 
change of some sort ; since change is necessary, either to 
the creation or to the increase of intrinsic value, and is 
always necessary to the existence of exchangeable value. 

We have also seen that all the changes which human 
industry can effect in matter, may be reduced to three, 
namely : Change in elementary form ; change in aggre-^ 
gate form ; and change in place. 

But when man puts forth exertion to effect change, it 
is not any change at random, but some specific change 
which he has directly in view. Were it otherwise, his 
labor would be worse than useless, and, like the effort of 
a maniac or an idiot, would, in nine times out of ten, 
destroy, instead of creating value. 

It is also evident that the changes which can be effected 
in matter, are not produced at random, but, in obedience 
to certain laws. If we wish to make a fire, it is not any 
kind of effort that will do it, but effort exerted in obedience 
to the laws of combustion. If we wish to raise wheat, it is 
not every kind of labor that will do it, but labor exerted 
in obedience to the laws of vegetation. And so in gene- 
ral, if we wish to effect either of the three kinds of change 
6 



42 THE FORMS OF HUMAN INDUSTRY. 

mentioned above, we must act in obedience to those laws 
of the Creator, to which this kind of change has been 
subjected. 

Again : Supposing the laws of nature, in respect to a 
particular change to be known, it is also necessary to know 
the manner in which they may most successfully be ap- 
plied to the accomplishment of a particular result. The 
laws of combustion and of gravitation may be known, and 
yet a very important effort of human ingenuity may be 
required, before we ascertain the best method of so apply- 
ing them, as to be able to construct a good fire-place. 
The expansive power of steam was known long before a 
steam engine was invented ; and still longer before any 
application of it was devised by which it might be used 
for propelling vessels on the water. And still further, a 
man may understand the general laws of physiology, and 
yet be unable to apply them to the cure of diseases. A 
man may understand the general principles of jurispru- 
dence, and yet not know how to avail himself of them, in 
such a manner as to procure either defence from injury, or 
redress of grievance. 

But suppose this also to be known : it still remains for 
us to put those means into operation, by which, in obe- 
dience to the laws of nature, a given result may be accom- 
plished. He who understands the laws of combustion and 
gravitation, and the mode of their application, may now set 
himself to work, according to these laws, and build a chim- 
ney. He who understands the laws of hydrostatics and 
the mode of their application, may now set himself to 
work, to build a boat. It is, however, true that there 
would still be required a certain degree of skill and dexteri- 
ty, before he could perform either of these operations well ; 
although he now could perform them, in some way or 
other. This skill can be acquired only by practice ; and 



THE FORMS OF HUMAN INDUSTRY. 43 

the power of acquiring it, is, in general, very universally 
bestowed upon men. 

From what has been said, it is evident that the industry 
of which man is suceptible, is capable of assuming three 
different forms, namely : Industry of discovei^y or i?ives- 
tigation ; Industry of application or invention ; and In- 
dustry of operation. 

1. Industry of Discovery or Investigation. Under 
this class of laborers, is to be comprehended those who 
discover the laws of nature, and those who make them 
knov/n to mankind, after they have been discovered. 
Newton labored in this department, when he discovered 
the laws of gravitation, optics, and of the motions of the 
heavenly bodies ; Franklin, when he discovered the laws 
of electricity ; and Sir Humphrey Davy, when he dis- 
covered the alkaline bases, and the laws of their combina- 
tion. The labor of each of these men is also of the same 
kind, when they made known these laws to the public. 
The labor of those who are called philosophers, belongs 
to this class. 

2. Industry of Invention or Application. It is very 
rarely that a simple law can be of any use, without 
some adjustment by vv^hich we may avail ourselves of 
its advantages.' Hence, a very important department of 
huma,n industry is that which teaches us how to make 
the application of the principle, so as to accomplish a par- 
ticular purpose. Newton performed this labor, when he 
invented the telescope ; Hadley, when, by means of the 
quadrant, he applied the laws of light to the measurement 
of angles ; Franklin, v/hen he invented the conductor, or 
lightning rod ; and Sir Humphrey Davy, when he invented 
the safety lamp ; and Fulton, when he invented that modi- 
fication of the steam engine, by which vessels may be pro- 
pelled through the water. 



44 THE FORMS OF PIUMAN INDUSTRY. 

Under this class, I think, may also be comprehended 
professional labor, generally. The business of the clergy- 
man is to teach us in what manner we may avail our- 
selves of the moral latos of the Creator. The lawyer 
teaches us how to avail ourselves of the laws of that civil 
society, of which we are the members. The physician 
teaches us how to obey the physiological latos under 
which we are created, so that we may be relieved from 
sickness, or preserved in health. 

3. To the third class of human industry belong all those 
who put forth the physical effort necessary, in order to 
create the values desired. They are the laborers who 
produce those changes, either in elementary form, in 
aggregate form or in place, of which we have already 
spoken, and they compose by far the most numerous 
class of society. 

It may here be remarked, that two of these forms of 
labor are frequently performed by the same person. For 
instance, he who discovers a law, sometimes also teaches 
us how to apply it. Thus, as we have already shown, Sir 
Isaac Newton, Franklin, and Sir Humphrey Davy, were 
all of them both discoverers and inventors ; that is, they 
performed both the first and the second kinds of industry. 
Thus, the second and third are also frequently united ; that 
is, the individual who labors at a particular operation, also 
invents some machine by which a particular process in that 
operation is improved. Thus, Sir Richard Arkwright, a 
mechanic, invented the spinning machinery now in com- 
mon use ; and, in general, many of our most important 
inventions have been made by operative laborers. And 
there can be no doubt that, if a knowledge of the laws of 
nature were more generally diffused throughout this class 
of society, the progress of invention would be inconceiva- 
bly more rapid. I know of nothing which would promise 



THE FORMS OF HUMAN INDUSTRY. 45 

more for the general improvement of the useful arts, than 
a wider diffusion of the knowledge of principles among 
those whose business it is to employ those principles in 
their daily practice. 

Although I have arranged the several forms of human 
industry in the above order, I by no means assert that this 
is the order in which they actually appear among men. 
The reverse is, on the contrary, far more commonly the 
;fact. Men commence by creating, at J&rst, the simplest 
forms of value, and those absolutely necessary to their 
actual existence. Still, in order to create these values, 
with certainty and with regularity, they must very soon 
have discovered, by experiment, some rides by which the 
process must be conducted. Men would very soon dis- 
cover that stones would not burn, and that a fire could 
not be built in a pool of water. As they advanced, by 
successive experiments, they invented tools, by which, 
without knowing why, they found themselves able to 
accomplish their purposes with less labor and with greater 
success. Thus, a man would construct a raft to transport 
himself and his property over a river, before he knew any 
thing of the laws of hydrostatics ; and he would employ 
a wedge, before he understood the doctrine of forces. 
The last labor required, is to ascertain the laws by which 
these changes are governed. As soon as this is done, a 
great improvement is at once effected in all the former 
inventions ; and new inventions arise, which otherwise 
would never have been suggested. Thus, a knowledge 
of the laws of combustion has greatly improved the con- 
struction of instruments for warming our houses. A 
knowledge of the laws of hydrostatics, has greatly im- 
proved the construction of ships. And a knowledge of 
the laws of steam, has given birth to all the machinery 
connected with the steam engine. And, it seems not too 
much to hope for, that the knowledge of the laws of 



4G THE PRODUCTS OF HUMAN INDUSTRY. 

nature will be yet so universally ditFused, that invention 
shall almost cease to be the work of accident, but, that, 
when an instrument is wanted, men will proceed to 
discover the law and invent the application, just as Sir 
Humphrey Davy proceeded, when he was requested to 
invent the safety lamp. 



OF THE DIFFERENT PRODUCTS OF THE VAKIOUS FORMS OF 

INDUSTRY. 

1. The product of operative industry, is a change of 
form or of place in matter, by which its intrinsic and 
exchangeable value is increased. As the exertion of this 
labor confers this value, it gives to the laborer a right 
either to the whole, or to an equitable part of the matter 
on which it is exerted. This right is easily ascertained 
and enforced ; for the laborer may enforce it, by seizing 
either on the matter itself, or on such part of it as may be 
sufficient to satisfy his demand. 

2. The change which is thus produced, could not be 
effected by a less amount of labor, than that which the 
laborer has exerted. If a man make a table with suitable 
skill, such a table could not be made by any one else with 
a less degree of skill and a smaller amount of labor ; and 
hence, the cost of tables must, in the same place and at the 
same time, be very much the same. Besides this, there 
is no power in tables to multiply themselves. Hence, the 
laborers in this or any other department, have a sort of 
monopoly of this kind of production, inasmuch as no one 
can produce it cheaper, and none but themselves can pro- 
duce it as cheap. 

But all this is reversed, in the case of the first two kinds 
of labor. For, 



THE PRODUCTS OF HUMAN INDUSTRY. 47 

1. Ths product which the discoverer or inventor cre- 
ates, is immaterial. It is knoioledge^ or a change effected 
on mi7id, the immaterial part of man. By creating this 
change, a man does not acquire a right to the whole, or 
to any part of the substance^ in which the value resides. 
The substance cannot be appropriated, nor can it be 
divided ; and, were this possible, the laborer could make 
no use of it. Nor is tlie change one which is cognizable 
by the .senses of others, but only by the consciousness of 
the person in whom it is wrought. Hence, this marks a 
broad distinction between these and the other forms of 
labor. 

2. Although the discovery of the laws by which the 
changes in matter are governed, may require the exercise 
of the most unusual talent, and may demand both pro- 
tracted and most expensive labor ; yet these laws may be 
promulgated, after they are discovered, by men of the 
most ordinary talent. Hence, there is no ratio between 
the labor or skill necessary to create it, and that necessary 
to promulgate it after it has been discovered. Hence, he 
who first creates knowledge, has no means of monopo- 
lizing it ; nor can the exchangeable value be sustained, by 
the consideration that no one could create it, afterwards, 
with less labor. 

3. The product which he creates has an indefinite 
power of self production. If a man discover ^ law and 
reveal it to his neighbor, that is, create this change in his 
mind, his neighbor may create the same product in an 
hour, in the minds of a thousand persons, and each one of 
these in the minds of a thousand more. And specially, 
by means of the press, this power is multiplied indefinitely. 
Hence, as the supply of the product can at any moment 
be inimitably increased, it very soon ceases to have any 
exchangeable value. 



48 THE PRODUCTS OF HUMAN INDUSTRY. 

From these reasons it will be seen, that the ordinary 
rules of supply and demand, and cost and labor, do not 
enter into view, when we speak of intellectual products. 
They can therefore be adjusted by no fixed rule. Never- 
theless as immaterial products are of the greatest impor- 
tance to the prosperity of a country, the Political Econo- 
mist may point out the circumstances most favorable to 
their production, and the rule by which their labor should 
be remunerated. The above considerations are suggest- 
ed, in order to explain, why Political Economy, so com- 
monly, treats almost exclusively of material products. 

It may, however be remarked, that civil society observ- 
ing that immaterial products are necessary to the well 
being of a community, and that those who create them, 
are liable to remain altogether unpaid ; has frequently 
devised means by which some remuneration may be 
reaped from the exercise of this kind of industry. Such 
are the laws of copy, and of patent right. By the first of 
these, an author is allowed, for a limited time, the exclu- 
sive control over the publication of his work ; and by the 
other, the inventor is entitled to the exclusive control 
over the use of his invention. In this manner, both: of 
these classes of laborers are enabled to derive some por- 
tion of benefit from their productions. Were it other- 
wise, all their reward would consist in whatever of con- 
sideration they might obtain in the community, and in 
the gratification of benevolence from the consciousness of 
having improved the condition of their fellows. But, in- 
asmuch as every other man who is usefully employed, 
obtains these rewards also, and receives pecuniary advan- 
tage in addition, there is no reason why the intellectual 
laborer should receive only the first, and be excluded 
altogether from the second. 

From what has been said, another difierence betweeii 



THE PRODUCTS OF HUMAN INDUSTRY. 49 

these two forms of product may be seen. The product 
of operative labor, being united with matter, and being 
hmited in quantity and fixed in cost, may be exported 
to another country, and will command a correspondent 
amount of exchangeable value in the products of that 
country. Hence, a nation may grov/ rich, either by agri- 
culture, manufactures, or commerce. But this is not the 
case with immaterial products. We cannot send abroad 
a given amount of knowledge, and bring back a corres- 
pondent amount of material products. The smallest 
amount of knowledge, is capable of such indefinite multi- 
plication, that the demand may be instantly supplied. 
Hence, a society composed solely of philosophers, or 
inventors, or professional men, would never grow rich, 
but must, if they did nothing else, of necessity starve. 
Laborers of this class add greatly to the value of other 
labor, though their product, if no other were created, 
would be valueless in exchange. They may be com- 
pared to the steam in an engine, which, when it is com- 
bined with proper machinery, produces the most surprising 
results, but which, when left to itself, is dissipated into 
air. While the separate parts of the machinery, though 
they might be of some use as raw material, yet, if the 
steam were withdrawn, would, without it, become a mere 
mass of cumbersome and valueless lumber. 

Thus, we see that all the classes of laborers are mutually 
necessary to each other. Without a knowledge of the 
laws of nature, we should all be savages. Without the 
skill and labor of the mechanic, there' would neither exist 
the opportunity of acquiring knowledge, nor would our 
knowledge, if acquired, be of any practical value. Nothing 
can, therefore, be more unreasonable than the prejudices 
-which sometimes exist between these different classes of 
laborers, and nothing can be more beautiful, than their 

7 



50 MODES BY WHICH THE PRODUCTIVENESS 

harmonious co-operation in every effort to increase pro- 
duction, and thus add to the conveniences and happiness 
of man. 



PART. II. 

THE MODES BY WHICH THE PRODUCTIVENESS OF HUMAN 
INDUSTRY MAY BE INCREASED. 

It is obvious, that if the capital and number of laborers 
be at any one period the same, the annual amount of pro- 
duct created will be as the amount of industry exerted. 
Were the laborers all sickly, so that they could work only 
for four hours a day, there would be but half as large a pro- 
duct created, as if they all labored for eight hours a day. 
If, by a palsy, they were all deprived of the use of one of 
their arms, a correspondent decrease of production must 
ensue. On the contrary, if, while the cost of their sup- 
port remained the same, their ordinary power of labor could 
be doubled, there would be twice the usual amount of value 
created. And hence, in general, we see that, other things 
being equal, just in proportion as more labor is bestowed, 
the desires of every one are more fully gratified, that is, 
he grows rich; and, on the contrary, as labor is diminished, 
the laborer suffers, or grows poor. This result every one 
witnesses every day. Sick, aged, and idle people suffer, 
because they either do not, or cannot, bestow the labor 
upon capital necessary to create a sufficient amount of 
product for their subsistence. 



OF HUMAN INDUSTRY MAY BE INCREASED. 51 

But the physical power of man is extremely limited. 
There is an average amount of fatigue which a human 
being can undergo, which can rarely, and but for very short 
periods, be exceeded. If he be worked too hard, he sickens 
and dies ; and probably dies from being overworked more 
readily and more commonly than any other animal. When, 
therefore, the whole physical power of man is employed 
upon the capital which he possesses, this may be consid- 
ered the natural limit of human productiveness. 

1. But, it is evident, that if by any means we could in- 
crease this power ten fold, there would be a tenfold 
increase of production. If we could, by any means, en- 
able a man with one day's labor, to execute as much 
change in capital as he could before execute with ten 
days' labor, there would be just ten times as many changes 
effected ; that is, ten times as much value created, and ten 
times as much product to be either enjoyed by himself, or 
to be exchanged for equivalent means of happiness. And, 
if the power of effecting changes is increased in other men 
in the same ratio, the product of the whole society will be 
increased in the same proportion. This is one of the effects 
produced by the use of natural agents ; and hence it is, that, 
just in proportion as they are used, the condition of man is 
annually and rapidly improved. 

2. But this is not all. There are many values which 
are necessary to the happiness and even to the existence of 
man, which he could not create by his unassisted powers. 
Thus, he needs shelter, cooked food, and clothing. But 
he could not, with his teeth and nails, cut down a tree, 
and fashion it into a cabin. He cannot, by his hands, 
either cook his food, or manufacture a fabric suitable for 
clothing. All these can, however, be done by other 
agents which he can command and control. Thus, iron 
can be made to cut down and fashion a tree, fire to cook 



52 MODES BY WHICH THE PRODUCTIVENESS 

his food, and a spinning wheel and loom can be made 
to furnish him with clothing. Thus we discover the 
second use of natural agents. They enable him to create 
values necessary to his existence, lohich, ivithout their 
aid, could never be produced. Thus, an additional power 
for the creation of product is given to human industry. 

3. But this is not all. It is found that a man, by de- 
voting himself to one particular pursuit, is able to create a 
vastly greater amount of product in a given time, than if he 
devoted himself to several pursuits. Hence, if there are 
ten products to be created, and there are ten men to 
create them, they will in a day, create a vastly greater 
amount, if each one labors entirely upon one, than if each 
one labors upon them all. The product of the whole ten, 
therefore, by such a division of labor, will be greatly 
augmented. This is the third method by which the pro- 
ductiveness of human industry may be increased. 

We see, then, the modes in which the productive power 
of man may be exerted. 1. Man may, unassisted, labor 
up to the extent of his physical ability. 2. He may mul- 
tiply his power, by availing himself of the agents of 
nature, either to facilitate the creation of products, or to 
create products which he could not create himself; or, 
3d. He may economize his labor, by such arrangements, 
as will enable him, in a given time, and with a given 
amount of fatigue, to accomplish a greater amount of 
result. 

It is in this manner, that is, by adopting these means, 
that the human race advances from the savage to the ci- 
vilized state. With nothing but his hands and feet, man 
could not subsist, except in the most temperate climates. 
His food would be wild fruits, and the animals which he 
.could run down in the chase. This is the lowest point 



OF HUMAN LABOR MAY BE INCREASED. 53 

of human wretchedness. It is a most laborious and inces- 
sant struggle to obtain the bare means of prolonging exis- 
tence. He invents a bow and arrow ; this is a natural 
agent, or a tool by which he avails himself of the elasticity 
of wood. By this simple tool, his, condition is materially 
improved. Still, he is destitute of most of the comforts, 
and frequently, at times, of the necessaries of life. Hence, 
in cold climates, great numbers of savages every win- 
ter perish from cold and famine. He next becomes a 
shepherd. Here he avails himself of the use of natural 
agents. The sheep furnishes him with wool, and the 
herds with milk. He now begins to taste the blessings 
of a regular and sufficient supply of food and clothing. 
He next becomes an agriculturist. Here, in addition to 
the agents formerly employed, he makes use of the earth, 
manures, and implements, and begins rapidly to accumu- 
late capital. His wants increase, and a division of labor is 
necessary to supply them. He here advances with rapid 
progress, and at every step, employs either new agents, 
or else old agents more successfully ; and divides his 
labor more skilfully, until he at length arrives at all the 
blessings of mature civilization. 

If it be asked, how far may this increased productive- 
ness of human industry be carried, we answer, it is im- 
possible to tell, unless we can ascertain how great are the 
blessings which God has in reserve for man. Who can 
estimate the benefits conferred on man by the magnet, or 
by steam, or by the printing press ? And what reason 
have we to suppose that the gifts of God are exhausted, or 
that there are not other and more excellent natural agents 
to be discovered, or other modes of using those which we 
are already acquainted with, that shall produce yet more 
surprising results than any which we have yet witnessed? 
Before the discovery of these agents, the most vivid imagi- 
nation could never have conceived of the benefits which 



54 THE USE OF NATURAL AGENTS. 

they have ah'eady conferred upon society. There is no 
reason to suppose that we are now more capable of fatliom- 
ing the goodness of God, than our ancestors were, three 
or four hundred years ago. 

And hence we see the inconceivable importance to a 
nation, of science, and of the labors of those who are de- 
voted to the discovery of the laws of nature, and to the in- 
vention of new modes of applying these laws, to the ser- 
vice of man. What would be the condition of the world 
at the present moment, if the knowledge of navigation 
and magnetism, and of the laws of chemistry were abo- 
lished. Undiscovered knowledge is just as rich in the 
means of human happiness, as discovered knowledge. 
And hence, that nation vv-hich is cherishing within itself, 
the means for availing itself of the benefit of all the laws 
of the Creator, will, most rapidly provide itself with the 
comforts and conveniences and luxuries of life, in the 
greatest abundance, and at the least possible cost. Who 
can tell the benefit which will result to this country, 
when Geology has . revealed to us the riches which at 
present remain hidden from our view, beneath the sur- 
f8.ce of the soil. 



SECTION I. 

OF THE USE OF NATURAL AGENTS. 

We shall now proceed to consider the several means by 
which the productive power of industry may be increased. 
This section will treat of the use of natural agents. 



THE USE OF NATURAL AGENTS. 55 

.-1 natural agent, is any quality or relation of things 
which can be used for the purpose of assisting us in pro- 
duction. 



Thus, the light and heat of the sun are natural agents, 
ithout 1 
products. 



without the aid of which, we could not create vegetable 



Caloric, or artificial heat, is a natural agent, without 
which we could neither cook our food, prolong our lives in 
cold climates, give any valuable quality to metals, nor 
create steam for the purposes of machinery. Magnetism 
is a natural agent, by which we are enabled, in any part 
of the earth, to know in what direction we are moving. 

The various pov/ers and instincts of animals are natural 
agents, by Avhich we accomplish purposes which could not 
be accomplished without them. Thus, the farmer avails 
himself of the muscular power and docility of the ox and 
the horse ; the huntsman, of the fleetness and scent of 
the hound, &c. 

Wind, the gravitating power of water, and steam, are 
natural agents, by means of which, we create the momen- 
tum necessary to the several operations in the arts. 

A tool, or a machine, is any combination of matter, by 
neans of which, we are enabled to avail ourselves of the 
qualities or relations of a natural agent. Thus, a lens or 
burning glass, is a tool, by means of which we concen- 
trate, for useful purposes, the rays of the sun. 

A stove, or a fire place, is an instrument, or tool, by 
which we avail ourselves of the calorific properties of 
fuel. 

A mariner^s compass is a tool, by which we avail our- 
selves of the peculiar quality of the magnetic needle. 



56 THE USE OF NATURAL AGENTS. 

A water id heel is a tool, by means of which we avail 
ourselves of the gravitating power of water. 

A steam engine is a tool, by means of which we avail 
ourselves of the expansive power of steam. 

The only difference between a tool and a machine is, 
that the one is more complicated than the other. A com- 
mon hammer is a tool, by means of which we avail our- 
selves of the gravity and density of iron, and of the power 
of the lever. A trip-hammer, by which large masses of 
iron are fashioned and wrought, is called a machine, but 
the principles employed are, in both cases, the same, only 
that the trip-hammer is moved by a natural agent, water 
or steam, while the common hammer, is moved by the 
hand. 

Now, it Vv^ill be easily perceived, from what has already 
been said, that the qualities and relations of natural agents 
are the gift of God, and being his gift, they cost us 
nothing. Thus, in order to avail ourselves of the mo- 
mentum produced by a water-fall, we have only to con- 
struct the water-wheel and its necessary appendages,, and 
place them in a proper position. We then have the use 
of the falling water, without further expense. As, there- 
fore, our only outlay is the cost of the instrument by which 
the natural agent is rendered available, this is the only 
expenditure which demands the attention of the political 
economist. 

If we reflect upon the various natural agents employed 
by man, we shall see that some of them can be used 
witliout any tools whatever. Such is the case in agricul- 
tural labor, with air, and the liglit of the sun. Others 
require only such simple instruments, that the effect of 
them n])on price is not apprecialilo. Thus, a mariner's 



OF AGENTS WHICH CREATE MOMENTUM. 57 

compass, which would last for twenty years, and assist in 
the transportation of half as many millions' value of mer- 
chandise, would cost but a few dollars. Others are used 
by few persons, and for particular and unusual purposes, 
as the lens, or the microscope. It is only those agents 
which require, in order to their employment, machinery, 
of which the cost is appreciable, and which are of so 
general necessity, that their use enters into consideration 
in estimating the expenses of living, that require to be 
specially noticed in Political Economy. 

The means most universally required for creating change, 
is momentum, or, as it is commonly called, power. Without 
this, in agriculture, no change in elementary form, and, in 
mechanics, no change in aggregate form, and, in transporta- 
tion, no change in place, can be effected. The instruments 
necessary to avail ourselves of the natural agents which 
create momentum, or which enable us to use it in par-" 
ticular methods, are very numerous and very costly, and 
form a large portion of the fixed capital of man. The 
natural agents which man uses for this purpose are, there- 
fore, those which particularly claim our attention ; and, to 
these, the remainder of this section will be devoted. 

The natural agents connected with the use of mometi-^ 
turn, may be divided into two classes : 

1. Those which create momentum. 

2. Those which enable us to use it. 

1. Of those which create momentum. 

This class of agents may be subdivided into two kinds ' 
1st. Animate; and, 2d. Inanim^ate. 

8 



58 OF ANIMATE AGENTS. 

1. Animate. These are, beasts of draft and burden, 
generally. The most common of these are, the ox, the 
horse, and the mule ; others in use in particular districts, 
are the camel, the elephant, and the dog. 

The subjection of animal power to the will of man 
marks an era in the progress of civilization ; and teaches 
us that the first important step has been taken in the im- 
provement of the condition of man, and in the productive- 
ness of human industry. The ox and the horse have much 
greater physical power than man. They may also be sus- 
tained at a much less expense. Their food is the sponta- 
neous production of the earth, which, for a large part of 
the year, they gather for themselves, and which requires 
no labor in preparation. They need no clothing in any 
latitude, and, in the warmer parts of the temperate zone, 
need no shelter. But, in consequence of his superiority 
in intellectual endowment, man can direct and govern the 
physical power of several of these animals, and, by attach- 
ing them to agricultural machines, can command that 
power at his will. If, then, by the use of animals, one 
man can wield a physical force equal to that of ten men, 
he will be able to produce, by the labor of a day, ten times 
as much as he could, before the introduction of animate 
agents. He will, therefore, by the same amount of labor, 
produce ten times as large an amount of objects of desire ; 
that is, of means of human happiness. He will have a 
larger surplus to employ in Ji:ved capital for the next year, 
and this surplus will be annually increasing, and increasing 
at the rate of compound interest. He will have a larger por- 
tion to exchange ; hence, he will be able, also, to enjoy a 
larger amount of his neighbor's products. He will be able 
to exchange with a greater number of producers ; hence, 
he will have a larger number of his desires gratified. And 
when once this first step has been taken, capital, unless 
destroyed by man's perverse moral dispositions, must in- 



OF INANIMATE AGENTS. 59 

crease so rapidly, that the mechanical arts soon com- 
mence, and permanent improvements and intellectual cul- 
tivation will follow in rapid succession. 

In the earlier stages of society, animate power must be 
used for the production of momentum, in all the three 
departments of human industry. In the labors of agricul- 
ture, it is still employed, and must probably be thus em- 
ployed forever. Nothing has yet superseded it, and there 
is reason to doubt whether any thing ever will supersede 
it. In this respect, therefore, so far as the means for the 
creation of momentum are concerned, the early and the 
later periods of society remain on a level. The improve- 
ments that have been made by the introduction of other 
creative forces, have generally been connected with the 
other modes of operative industry. 

2. Of Inanimate Natural Agents. The inanimate 
agents most commonly in use, are : The explosive force of 
Gunpoivder ; Wind ; The gravitating poiver of Water ; 
and The expansive power of Steam. 

1. Gunpoioder is used in the blasting of rocks, in hunt- 
ing, and in war. Its value, in the blasting of rocks, is 
very considerable. By drilling a small hole, which may 
be done by one man in a day, and by the use of a few 
ounces of gunpowder, a force may be exerted in an in- 
stant, producing an effect which, twenty men, for several 
days, could not otherwise have exerted. Hence, it is of 
very great use in all works of internal improvement, where 
rocks must be removed, in order to admit the passage of 
railroads and canals. In fact, it is doubtful whether many 
of the most important of these works could ever have been 
executed, but for this agent. Others, if the execution of 
them were possible, must have been accomplished at so 
great an expense, that the investment of capital in them 



60 OF INANIMATE AGENTS. 

would not have been profitable, and, of course, it would not 
have been made. 

Gunpowder is also used extensively in war. If war be 
beneficial, or even necessary, gunpowder is an agent of the 
utmost importance ; for, by no other means yet discovered, 
is it possible to destroy so many men, with so little physi- 
cal suffering, and with so little personal labor. It has also 
a moral advantage over other methods of slaughter, inas- 
much as the destruction of human life in this manner, 
excites less sensibly the ferocity of the human heart. On 
this account, wars, since its introduction, have been con- 
ducted on more humane principles than formerly. It has 
also been a valuable auxiliary to the progress of civiliza- 
tion, since it has conferred on civilized, an undisputed 
mastery over uncivilized nations. There has not been, 
for centuries, any danger to Christendom from barbarian 
invasion. Besides, the more energetic are the means of 
destruction in war, the less is the loss of life in battle. 
Hence, of a given number of combatants in an engage- 
ment, a much smaller proportion is now slain than for- 
merly. This might almost give rise to the seemingly para- 
doxical hope, that some means of destruction might yet 
be invented, so overwhelming in its effects, as to put the 
smallest number of men on a level with the greatest, and 
hence to put an end to wars altogether. 

2. Another agent used for the creation of momentum, 
is Wind. Wind, as a stationary agent, is an important 
mechanical power, in countries destitute of water power, 
or of the fuel necessary for the production of steam, or of 
the capital which must be invested in the machinery 
required in the use of more expensive agents. Its prin- 
cipal advantage, is its cheapness. It costs nothing to 
create it, and the machinery by which it is applied, is 
simple, and easily constructed. 



OF INANIMATE AGENTS. Gl 

The disadvantages of wind, are its uncertainty, both in 
quantity and in time, and the difficulty with which it is 
regulated. In consequence of the irregularity of its force, 
it is impossible to employ it in labor requiring delicacy of 
operation ; and, in consequence of its uncertainty in time, 
it could not be employed where the labor of many persons 
was dependent on its assistance,, 

As a locomotive power, on water, wind is almost uni- 
versally used in navigation. Though the direction in 
which it acts, is variable ; yet, nautical skill enables us to 
use it when blowing from almost any point whatever. Its 
variation in the quantity of force, is here also a matter of 
less consequence, since this circumstance can affect the 
operation to be performed, only in respect to time. And 
variation, even in this respect, has, in a great degree, 
yielded to science and enterprise. It is astonishing to 
observe with what precision and certainty, voyages are 
now made between New York and Liverpool. Hence it 
is, that this agent is made use of in all foreign navigation. 
Steam has taken its place in the navigation of rivers, and 
along the coast ; and attempts are now in progress to em- 
ploy it upon the ocean, but with what success, it remains 
yet to be seen. It is probable that, for packet ships, it 
may be used with advantage ; but for vessels of burthen, 
it is doubtful whether any thing will ever take the place 
of wind. The splendid discoveries of Dr. Nott, by which 
anthracite coal has been successfully introduced, as a fuel 
for the generation of steam, will probably greatly facilitate 
the use of this agent in foreign navigation. 

3. Another agent used for the creation of momentum, 
is the gravitating povjer of Water. This is used only 
as a stationary agent. Its advantages are, that it is cheap, 
tolerably constant, and frequently, is capable of exerting 
great mechanical force. Its disadvantages are, that it is 



62 OF INANIMATE AGENTS. 

stationary ; that is, that it can be used only in situations 
where it has been created by nature. Hence, it is fre- 
quently at a considerable distance from the seaports 
whence the manufacturer derives his supplies, and 
whence he exports his products. In such cases, the cost 
of transportation must be deducted from the profits of the 
establishment, and of course are, to this amount, a diminu- 
tion of its value. 

Water cannot always be commanded in siifficieiit quan- 
tity. Very few mill seats are secure from the liability to 
suffer from the want of water. This is a great incon- 
venience, inasmuch as, in seasons of drought, a large 
number of the laborers must be unemployed, and a large 
portion of the expenses of the establishment must be 
incurred, without yielding any remuneration to the pro- 
prietor. 

Another disadvantage of water power is, that it is liable 
to danger from inundation. Though this may be guarded 
against, in many cases ; yet, it frequently can be done 
only at an expense which reduces greatly the cheapness 
of the agent. Notwithstanding these disadvantages, water 
power will probably be always used, where great mechani- 
cal force is required ; where the machinery to be employed 
is simple ; and where the operation does not require the 
greatest possible nicety of execution. 

4. The power, however, most commonly in use at 
present, is Steatn. Its advantages are, that it can be used 
to create any required degree of mechanical force ; that it 
is perfectly under human control ; tliat it may be created 
in any place where fuel can be obtained ; that it can be 
used at will, either as a stationary, or a locomotive power ; 
and that it can be made to act with perfect regularity. 
Its only disadvantage, is its expensiveness. The ma- 



OF INANIMATE AGENTS. 63 

chinery by which it is generated is costly, and requires 
frequent repairs ; and the fuel, by which it is maintained, 
is a very serious item of consumption. The price of 
engines, however, will be gradually reduced, as the de- 
mand for them increases. And it is probable, that, by 
improvement in their construction, the consumption of 
fuel will be greatly diminished ; while increased facilities 
for transportation will materially reduce its price. The 
introduction of steam power has greatly reduced the price 
of fuel in Great Britain. 

The question whether steam or water power should be 
used in any particular case, is, I suppose, to be decided by 
their relative expensiveness. This will be decided, prin- 
cipally by the place in which the power may be required. 
Where water power can be procured in abundance, and 
sufficiently near to a market or to tide water, it will 
generally be the cheaper. But where it is variable in 
quantity, or is at a considerable distance from the place 
of delivery, the cost of transportation will frequently over- 
balance its other advantages, and render steam power the 
more economical. Machinery propelled by steam, can be 
erected and carried on upon a wharf, or in the midst of a 
city : and hence it avoids all the cost of unnecessary 
transportation. Machinery propelled by water power, can 
be erected only at the place where the water power exists, 
and, of course, is subject to all the expense of transporta- 
tion between that place and the market.* 



* Whilst these sheets are passing- through the press, I observe it stated 
in the public prints, that at Lowell, Massachusetts, the expense of steam, 
is to that of water power, as one hundred to one hundred and twenty- 
five, or, as four to five. I have not, at the instant, the means of ascer- 
taining the truth of this statement. If it be true, it is of vast impor- 
tance, and teaches us that manufactures may be established, in any part 
of our country, where fuel can be procured at a reasonable cost. The 
fuel employed at Lowell, is, I presume, brought from Pennsylvania. 



<?4 OF INANIMATE AGENTS. 

The ADVANTAGES of inanimate over animate natural 
•agents, are several. 

1. Inanimate agents can, within a small compass, and 
with comparatively little weight, produce a vastly greater 
amount of momentum, than animate agents. Thus, a 
steam engine of one hundred and fifty, or two hundred 
horse power, occupies but a small space, and forms but a 
small part of the cargo of a vessel. But, so great a num- 
ber of horses could scarcely be carried in any vessel 
designed to transport either freight or passengers ; and 
besides, no mechanical arrangement has yet been devised, 
by which such a number of animals could profitably be 
employed upon one operation. 

2. They are contiiiuous ; that is, they are never liable 
to fatigue, and never need rest. Animals must spend 
the greater part of their time, in feeding or in repose. 
Specially is this the case, if they are worked rapidly, 
During this time, the labor which they perform must 
either be suspended, or else other animals must take 
their place. A horse cannot labor severely, more than 
eight hours in twenty-four. Hence, if the uninterrupted 
labor of horses were required for twenty-four hours, three 
relays must be provided. Thus, if a boat were required 
to perform a voyage in twenty-four hours, she must 
employ three relays of horses ; that is, a steam boat 
worked by a power equal to that of one hundred and fifty 
horses, would require four hundred and fifty horses, in 
order to create the necessary momentum. 

3. Hence, there is a great gain in Economy. The first 
cost of inanimate, is generally less than that of animate 
agents ; they are liable to no diseases ; they require no 
food ; and create expense, only while they are performing 
their work. Were the labor now performed by steam, to 



ANIMATE AND INANIMATE AGENTS. 65 

be performed by horses, the price of the ordinary necessa- 
ries of hfe would be quadrupled, and many articles of ordi- 
nary use would be placed out of the reach of any but the 
most opulent. Nor is this all. The substitution of inani- 
mate, for animate power, has a great tendency to reduce 
the cost or to increase the supply of all agricultural pro- 
ducts. Suppose, that, by the use of steam, one thousand 
horses can be dispensed with. A horse requires for sus- 
tenance, throughout the year, as much agricultural pro- 
duce as would support eight men. If, then, these one 
thousand horses can be dispensed with, there ma^r be 
produced, on the land which was formerly employed for 
the production of hay, as much grain as will support eight 
thousand men. This must, at first, reduce the price of 
grain ; but as, in the end, the price of grain would rise to 
the general average, the result would be, that the district 
would support eight thousand more men than before. 

4. There is, also, commonly a gain in perso7ial safety. 
Inanimate agents act under laws which may be known and 
obeyed, and of wiiich the results may be commonly fore- 
seen and guarded against. Animals are endowed with 
passions and will, which we can frequently neither con- 
trol nor influence. Besides, the greater expensiveness of 
the individual machines employed in theuse of inanimate 
agents, renders it for the interest of the proprietor, to 
employ men of experience and responsibility to manage 
them. This very sensibly diminishes the risk. When 
tve reflect upon the vast amount of travelling, by steam- 
boats and railroads, it must be evident that, notwith- 
standing the accidents to which they are liable, a vastly 
greater amount of human life would be sacrificed, if the 
same rmmber of persons were transported by horses. It 
is also to be remembered, that the use of steam is yet in 
its infancy, and that greater experience and skill will 

9 



66 ANIMATE AND INANIMATE AGENTS. 

materially reduce the number of accidents to which this 
mode of conveyance is at present liable. 

5. Inanimate agents can be used without the injliction 
of pain. Inanimate agents are insensible. Where the 
labor to.be accomplished is either severe, or where it 
requires great speed, animals must be rapidly consumed. 
This exposes them to great suffering. A horse, in a stage 
coach, can rarely travel, rapidly, more than ten miles a 
day ; and most horses will endure even this labor but for 
a short time. From this suffering, inanimate power is 
exempt. It never endures pain, from being over driven. 

6. Animate power decreases with velocity. Hence, we 
must soon arrive at a point, beyond which it can no further 
be used to create momentum. If we represent the trac- 
tive force of a horse, when moving at two miles an hour, 
at 100, his force, at the rate of three miles, will be 81 ; 
at the rate of four miles, 54 ; at the rate of five miles, 49 ; 
at the rate of six miles, 36 ; while, at the top of his speed, 
he can carry nothing more than his own weight. An 
engine, on the contrary, works as powerfully at one degree 
of velocity as at another. In all cases, therefore, in which 
both great power and great velocity are required, inani- 
mate power must, of necessity, be employed. 

From these causes, we see that inanimate is rapidly 
taking the place of animate power, both where stationary, 
and where locomotive force is required. By the additional 
speed which it is capable of producing, it gives rise to great 
economy of time. This, to all persons engaged in active 
employments, is a consideration of vast moment. Being 
a continuous agent, it is also enabled to act with the 
greatest certainty. Hence, men may adjust their trans- 
actions, in different places, with entire precision. This 
is also another source of economy, both of time and capi- 



MEANS BY WHICH MOMENTUM IS APPLIED. 07 

tal. And besides, notwithstanding the expensiveness of 
the arrangements for the use of locomotive forces, yet the 
amount of additional travelling to which they give rise is 
so great, that the expensiveness of transportation between 
different places is, in general, materially diminished. 

II. Of the natural agents by ivhich moment nni is 

APPLIED. 

It is obvious that a great addition is made to human 
power, where the agents for creating momentum have 
been discovered. But this is not all. There may be 
formed several combinations of matter, by which mere 
human force may be greatly assisted, and which, by 
being united with the agents for creating momentum, 
may greatly increase, and vary, and give adaptation to, 
its utility. These are called the mechanical powers, 
which are treated of at large, in works on Mechanics 
and Natural Philosophy. In their simple form, they are, 
the lever, the wheel and axle, the inclined plane, the 
screw, the pulley, and the wedge. They are variously 
combined, for producing the different results of mechanics, 
but may be all reduced to these simple elements. 

By means of these, the muscular power of man is enabled 
greatly to increase its effect ; that is, a man, by his own 
strength, can now accomplish labor which he could not 
have accomplished without them. Though these instru- 
ments give no new strength, yet they greatly increase the 
effectiveness of that which already exists ; and hence, 
their invention marks an important era in the progress of 
civilization. It is also to be remarked, that their origin, 
in point of time, is far in advance of the discovery of the 
creative agents. Archimedes had made great progress in 
the discovery and application of these modifying powers, 
when the use of creative agents was almost unknown. 



68 MEANS BY WHICH MOMENTUM IS APPLIED. 

The triumph of human skill is, however, achieved, 
when these two forms Of natural agency are combined in 
a single machine. By the one, we generate power, to 
what extent soever we choose ; and, by the other, we 
modify it in any form, give to it any application, and 
direct it to any purpose that our convenience may re- 
quire. It is in this manner, that man renders all the 
various powers of nature tributary to himself. He can 
thus create, and use as he pleases, as great a power as he 
desires. He devolves the labor upon nature, and he has 
only to fabricate the instruments, and give them their 
direction. He is successful, just in proportion as he does 
this; since nature always works with undeviating accu- 
racy, with unerring skill, with indefatigable perseverance ; 
and she always works for nothing. 

It may be useful to specify some of the results accom- 
plished by the various instruments, which man employs 
for modifying that momentum which is exerted by the 
first class of natural agents. 

1. We are thus enabled to change the direction of the 
power. Thus, in the cylinder of the steam engine, 
the momentum is created in perpendicular or horizontal 
strokes. This being, by means of an arm and a crank, 
changed into a circular motion, moves the paddle-wheels 
of a steamboat. Thus, also, in the machinery for mov- 
ing a trip-hammer, a circular is changed into a perpen- 
dicular motion, by the striking of the cogs of a wheel, upon 
the short arm of a lever, while the hammer is attached to 
the other arm. 

2. We exchange poioer for velocity. This is done in 
all spinning machinery. By water or by steam, we cavise 
a large wheel to revolve ten, twenty, or thirty times in a 
minute, and with a poAver equal to that which could be 



MEANS BY WHICH MOMENTUM IS APPLIED. G9 

produced by fifty or one hundred horses. In spinning, 
however, we need small power, but great velocity. 
Hence, by the combination of various large and small 
wheels, we produce a velocity, in a thousand spindles, 
equal to many thousand revolutions in a minute. The 
whole of this fifty or one hundred horse power, is thus 
spread over a large manufactory, and adapted, by various 
contrivances, to every degree of velocity, and every form 
of motion tha,t may be required. 

3. We are thus enabled to exert forces too great for cm- 
imate -power. By water power, or by steam, we can gen- 
erate as great a force as we please ; and we have only to 
combine with it the proper adjustments, in order to exert 
any momentum which we desire. The power required 
to roll and hammer iron, or copper, to propel steamboats, to 
forge anchors, and that used in several other of the arts, is 
greater than could be exerted by any force with which we 
are acquainted, unless it were exerted by means of some 
combination of the mechanical forces. 

4. We are thus also enabled to execute operations too 
delicate for human touch. Very delicate operations, soon 
Aveary the nervous system by the excessive attention 
which they of necessity require. Thus, to spin the finest 
thread on a spinning wheel, there must be great accuracy, 
both in the velocity of the wheel, and in the muscular 
power exerted in drawing out the thread. This requires 
an effort of attention, "which the human system cannot 
long maintain, and, of course, the thread will frequently be 
uneven. But, by means of machinery, both of these ope- 
rations may be adjusted with mathematical accuracy ; and, 
as machines have no nerves, they will be pefectly faithful to 
that adjustment. Thus we invariably see that the most 
delicate fabrics are those that are wrought by natural 
agents. Hence machinery is of necessity used in the 



70 MEANS BY WHICH MOMENTUM IS APPLIED. 

manufacture of such articles as require for their formation 
identity of result, such as screws, types, &c. 

5. By means of machinery, we are enabled to accumu- 
late power. We thus exchange a continuous and small 
force, for a sudden and violent one. Such is the case with 
the pile-driver, and the common beetle or mallet, when 
used in combination with the wedge. 

6. By the same means, we are enabled to c.vchange a, 
short and irregular effort for a contimious and regular 
movement^ or to spread the action of a short, over a long 
period of time. This is done in clocks, watches, and other 
similar machinery. Here we spread the action of a 
minute, over a day, or a week, and with almost mathe- 
matical accuracy. 

In consequence of the above mentioned application of 
machinery, various other advantages are realised in pro- 
duction. For instance ; there is frequently a great saving 
of material, as in the change from making boards with the 
adze, to that of making them with the saw; and again the 
labor of natural agents is so much cheaper, that many 
articles which would otherwise have been worthless, are 
now deserving of attention, as they may now be pjroJfita- 
bly endowed with some form of value. 

I close these remarks, upon the use of natural agents, 
with an extract, very graphically describing the power of 
the steam engine, Avhich has commonly been ascribed to 
Francis Jeffrey, Esquire, of Edinburgh : 

" It (the steam engine) has become a thing, stupendous 
alike for its force and its flexibility ; for the prodigious 
power which it can exert ; and the ease, precision and 
ductility with which it can be varied, distributed and 



MEANS BY WHICH MOMENTUM IS APPLIED. 71 

applied. The trunk of an elephant, that can pick up a 
pin or rend an oak, is as nothing to it. It can engrave a 
seal, and crush masses of obdurate metal before it ; draw 
out, without breaking, a thread as fine as a gossamer ; and 
lift up a ship of war, like a bauble in the air. It can em- 
broider muslin, and forge anchors ; cut steel into ribands, 
and impel loaded vessels against the fury of the winds and 
waves. 

" It would be difficult to estimate the value of the 
benefits which these inventions have conferred upon the 
country. There is no branch of industry that has not 
been indebted to them, and in all the most material, they 
have not only widened most magnificently the field of its 
exertions, but multiplied, a thousand fold, the amount of 
its productions. It is our improved steam engine, that has 
fought the battles of Europe, and exalted and sustained, 
through the late tremendous contest, the political great- 
ness of our land. It is the same great power, which 
enables us to pay our national debt, and to maintain the 
arduous struggle in which we are still engaged, with the 
skill and capital of countries less oppressed with taxation. 

"But these are poor and narrow views of its impor- 
tance. It has increased, indefinitely, the mass of human 
comforts and enjoyments, and rendered cheap and accessi- 
ble, all over the world, the materials of wealth and pros- 
perity. It has armed the feeble hand of man, in short, 
with a power to which no limits can be assigned ; com- 
pleted the dominion of mind over the most refractory 
qualities of matter; and laid a sure foundation for all those 
future miracles of mechanical power, which are to aid 
and reward the labors of after generations." 



SECTION IL 

OF BIVISION OF LAEOR. 

We have shown that the productiveness of human 
industry may he greatly increased by the discovery of 
the quahties and relations of things, and by the invention 
of instruments, by which those qualities may be applied 
and modified. In this manner, the power of man receives 
an almost incalculable augmentation. But this is not all. 
It is found that the result of human effort may be still 
farther very greatly increased. Thus: supposing the 
agents of nature, and also their mode of application to be 
known, and that a given number of men are about to per- 
form an operation, they may make such arrangements 
among themselves, as will, in a given time, and with 
a given expenditure of labor, enable them to aecom-* 
plish a vastly greater result than could be accomplished 
without such arrangements. The mode in which this is 
effected, is by division of labor. 

Division of labor, is always, to some degree, employed 
where different individuals are engaged in the differ- 
ent branches of human industry. Thus labor is divided, 
when different persons employ themselves in the seve- 
ral departments of discovery, application, and operation. 
Labor is still further divided, Avhen those employed in 
these great departments, are separated into distinct classes, 
each class devoting itself to the accomplishment of one 
particular object. Thus, one man investigates the laws 
of mechanics ; another, those of astronomy ; and a third, 
those of vegetation. One man is devoted to the profession 
of law ; and another, to that of medicine ; while each 



DIVISION or LABOR. f'^ 

separate trade, is employed in the execution of a particu- 
lar operation. By all these divisions, it is manifest that 
the result of the whole is greatly increased. It is only 
the savage, that combines in his own person, in all their 
departments, the character of philosopher, inventor, and 
operator. He approximates to the civilized state, only 
in so far as he begins to confine himself to some particu- 
lar calling. And it is always in the most advanced periods 
of civilization, that division of labor is carried to its ulti- 
mate limits. 

But, besides this, the different parts of a single opera- 
tion may be analyzed ; and to each part the whole labor 
of a single individual may be confined. Thus, the labor 
of making a pin may be divided into wire drawing, wire 
straightening, pointing, heading, tinning, &c. In politi- 
cal economy, labor is said to be divided, just in so far as 
these several processes are assigned to separate operators. 
It is found, by experience, that such an arrangement in- 
creases the productiveness of human labor to an extent, 
which, to a person who had not examined the facts, would 
appear wholly incredible. The principles on which this 
increased productiveness of labor depends, are the follow- 
ing : 

1. Division of labor shortens the period required for 
learning an operation. The more complicated the opera- 
tion, the longer is the time necessary for acquiring the 
skill requisite to the performing of it successfully. But 
this time spent in learning, is useless to the operator and 
to society, only in so far as it is necessary to the creation 
of the product. The longer the time necessary for learn- 
ing an operation, the higher must be the wages of the 
operator, for the remainder of his life ; and also, of course, 
the greater must be the price of his products. If this can 

10 



74 DIVISION OF LABOR. 

be lessened, the price of course will fall. Now, that this 
is lessened by division of labor, is evident from an obvious 
example. Suppose a given process, say the making of 
nails, consists of seven operations ; and that each of these 
operations required one year's practice, before it could be 
successfully performed. Now, if seven men were to learn 
this occupation, and each one were obliged to learn every 
operation, the time required would be 7X 7=49 years; 
whereas, if each of them were required to learn but one, 
the time would be but 7xj 1=7, or, the difference Avould 
be, 49—7=42 years of human labor, or six-sevenths of the 
whole time, which would thus be saved. There would 
be six years more of productive labor, in the life of each of 
these men ; and, as they had spent less time in acquiring 
their art, they could afford to exercise it for lower wages. 

But, besides this, there is, intimately connected with 
this cause, another, of considerable importance. Every 
one, in learning an art, must, by unskilfulness, destroy a 
considerable portion of capital. And this amount of capi- 
tal will be in proportion to the number of operations which 
he is obliged to learn. Thus, suppose a man learns seven 
operations, and, in learning each, destroys ten dollars' 
worth of capital, the amount which he will destroy, in 
acquiring his whole trade, will be 7x 10=70. If he have 
to learn but one, it will be but ten dollars ; and thus, the 
"difference will be 70—10=60 dollars, upon every such 
individual. A difference, so great as these two combined, 
when spread over the whole face of society, will have no 
inconsiderable effect upon the annual nett revenue of a 
community. 

2. When one man performs all the operations required 
in a complicated process, much time is lost in passing from 
one operation to another. By division of labor, this loss 
is avoided. 



DIVISION OF LABOR. 75 

The eiFect of habit is known to every one. It renders 
any operation easy, which is frequently repeated. The 
mind and the muscles become adapted to a particular form 
of labor ; but, if that form of labor be suspended, and our 
attention be directed to another, it requires a considerable 
time before we can acquire a diflerent habit, and, in the 
mean time, the good effects of the preceding habit, are, 
to a considerable degree, lost. Hence, he who is fre- 
quently passing from one occupation to another, is in the 
condition of him who is, during his whole life, forming 
habits ; and never in the condition of him, who has the 
advantage of habits already formed. Besides, this long 
habit produces in the muscles a capacity for continued 
exertion. He who is in the habit of performing an ope- 
ration, can perform it, without sensible fatigue, for hours 
together. Every one who has ever sawed Vv^ood, or used 
a spade in a garden, is sensible of this fact. Now, all this 
advantage is lost, by turning frequently from one opera- 
tion to another. 

3. Where complicated tools are to be used, and there 
is no division of labor, much time is also lost in adjusting 
them to the different kinds of work. By division of labor, 
this disadvantage is obviated. Suppose that nails, of dif- 
ferent sizes, are to be made, and it is necessary that the 
machinery, in order to adapt it to the different kinds of 
work, should be frequently adjusted ; the time so occu- 
pied produces nothing, and is lost. If, on the contrary, 
one machine is permanently used for the manufacture of 
nails of one particular size, all this loss is avoided. This 
is also more obvious, when the adjustment involves ex- 
pense ; as, for instance, when a furnace is used. If a fur- 
nace be heated, ;and then suffered to cool while the opera- 
tor is performing some other labor, the fuel consumed, 
after he leaves it, and that which is used to brmg it again 
to the requisite temperature, are a total loss, in addition to 



76 DIVISION OF LABOR. 

that of the time and labor required in hghting the fire, and 
in waiting for the rise of temperature. By dividing the 
labor, so that one person shall be always employed at the 
furnace, whilst others are employed at other parts of the 
process, much capital and labor will be saved. 

4. By constantly pursuing the same occupation, a de- 
gree of skill and dexterity is acquired, which greatly 
increases the productiveness of human labor. This ad- 
vantage is lost, by employing the same individual upon 
several operations. Adam Smith informs us, that a black- 
smith, who occasionally makes nails, but whose whole 
business is not that of a nail-maker, can make but from 
eight hundred to one thousand nails a day ; whilst a 
lad, who has never exercised any other trade, can make 
upwards of twenty-three hundred a day. All who have 
been accustomed to visit manufactories, must have been 
surprised to observe the dexterity which is acquired, even 
by children, in performing the operations in which they 
are exclusively engaged. It is probable that the perform- 
ers of jugglery or sleight-of-hand, derive their skill, almost 
entirely, from this cause. They seldom perform more 
than a few operations, but by practising these, and these 
alone, for a great length of time, they at last attain to a 
proficiency, which, to a spectator, is incomprehensible. 

5. Division of labor suggests the contrivance of tools 
for the performance of the operation in which it is em- 
ployed. 

The more completely any process is analyzed, the 
simpler must become the individual operations of which 
it is composed. And the simpler any operation is, the 
easier is it to contrive a tool, or an adjustment, by which 
it may be performed. Adam Smith informs us, that, in 
.the first steam engines, boys were constantly employed 



DIVISION OF LABOR. 77 

to open a communication between the boiler and cylinder, 
according as the piston ascended or descended. One of 
these boys observed, that, by tying a string from the 
handle of the valve which opened this communication to 
another part of the machine, the valve would open and 
shut without his assistance, and leave him at liberty to 
play with his fellows. One of the most important im- 
provements of this machine was thus, by division of labor, 
brought within the capacity of a playful boy. It would 
have been very difficult to invent machinery for the mak- 
ing of nails, when all the processes were considered as a 
complicated whole. But after the several operations are 
divided, and are assigned to individuals separately, it be- 
comes comparatively easy to construct an adjustment, by 
which any one of them, singly, could be performed. 

This is the first step in invention. But this is not all. 
After these several single instruments have been invented, 
the next step is to combine them together. This is the 
most finished effort of mechanical genius. This is the 
principal difference between a tool and a machine. A 
tool performs one single operation ; a machine combines 
several tools together, and accomplishes either the whole, 
or a considerable part, of a complicated process. 

6. Every one, at all acquainted with manufacturing 
employments, must have observed, that some of the ope- 
rations, in a given process, require, greater muscular 
power, or greater skill, or greater dexterity than others. 
Some, for instance, can be performed only by the most 
experienced workmen, while others can be perfectly Avell 
performed by children. Now, by division of labor, a 
manufacturer is enabled to employ, upon each operation, 
precisely the labor adapted to it, and is obliged to pay for 
each portion of the labor no more than it is actually worth. 
This must greatly diminish the cost of production. Thus, 



78 DIVISION OF LABOR. 

the manufacture of pins is divided into ten different opera- 
tions, and each operation employs one laborer. But some 
of these laborers are men ; others are women and children ; 
and their wages vary from six shillings to four and a half 
pence sterling a day. If the labor were not divided, 
one person must understand the whole process, and, there- 
fore, must be employed at the highest price of labor ; and 
hence, he must be paid at the rate of six shillings a day, 
for that part of the work which is worth only four and a 
half pence a day. Every one must see that this would 
greatly increase the price of pins, and also occasion a 
great deficiency in labor. It is by this means, also, that oc- 
pation is provided for the weak and the aged, for females 
and for children, who would, otherwise, be unable to earn 
any thing. Thus, all the labor of the community is ren- 
dered productive, and an immense amount is annually 
added to the revenue of a country. Nor is the gain to be 
estimated at simply what is thus earned. The whole com- 
munity is thus acquiring those habits of industry and self- 
dependence, which are essential to its happiness and well- 
being, no less than to its rapid accumulation of capital. 

Nor are the benefits of the division of labor confined to 
mechanical processes. Their results have been equally 
interesting, in those cases Avhere this principle has been 
applied to intellectual labor. The effect of such a division 
is seen in the following account, which I introduce here, 
not only because it very happily illustrates this whole sub- 
ject, but also because it may suggest to scientific men, 
some other cases in which it may be again applied with 
similar benefit. 

During the period of the French revolution, the govern- 
ment was desirous of producing a series of mathematical 
tables, in order to facilitate the extension of the decimal 
system, which had been recently adopted. They directed 



DIVISION OF LABOR. 79 

their mathematicians to constract such tables on the most 
extensive scale. The superintendence of the work Avas 
confided to M. Prony. It happened that shortly after he 
had undertaken it, he opened, in a bookstore, Adam 
Smith's "Wealth of Nations," and, by accident, turned to 
the chapter on division of labor. The thought imme- 
diately suggested itself, that this might be adopted in the 
work in which he was engaged. He immediately fol- 
lowed out the suggestion, and arranged his plan accord- 
ingly. He divided the persons who were to execute the 
labor, into three sections : 

The first section was composed of five or six of the 
most eminent mathematicians of France. Their duty 
was to ascertain the analytical expressions which were 
most readily adapted to simple numerical calculation, and 
which could be performed by many individuals employed 
at the same time. The formulas on the use of which it 
had decided, were to be delivered to the second section. 

The second section consisted of seven or eight persons, 
of considerable aquaintance with mathematics, whose duty 
it was, to convert into numbers the formulas put into 
their hands by the first section ; and then to deliver out 
these formulcB to the members of the third section, and to 
receive from them the finished calculations. These they 
could verify without repeating the work. 

The third section consisted of sixty or eighty persons. 
They received the numbers from the second section, and 
using nothing more than addition and subtraction, returned 
to that section, the finished tables. Nine-tenths of this 
class had no knowledge of arithmetic beyond its first two 
rules ; and it is remarkable that these were usually found 
more correct in their calculations, than those that possessed 
a more extensive knowledge of the subject. The extent 



80 LIMITATIONS TO DIVISION OF LABOR. 

of the labor, which was thus executed in a remarkably 
short space of time, may be estimated, when it is stated 
that the tables thus formed are computed to occupy seven- 
teen large folio volumes. And yet, we see that the 
greatest part of the labor was actually accomplished by 
persons who might be employed at very small expense, 
and who could do the work assigned to them, as perfectly 
as those whose labor was the most expensive.* 

We thus see the manner in which the productiveness of 
human labor may be increased. 1st. By discovering the 
various agents of nature which God has created for our 
benefit ; 2d. By applying these agents to the service of 
man ; 3d. By so arranging and adjusting human industry, 
that the labor necessary to be employed, may operate with 
the greatest possible advantage. In one or other of these 
methods, must every improvement in the physical condi- 
tion of mankind operate. And, civilization advances just 
in proportion as all of them combined are brought to bear 
upon the work of production ; that is, of creation of objects 
of desire, in other words, of means for human happiness. 



SECTION III. 

THE LIMITATIONS TO THE DIVISION OF LABOR. 

We now ])roceed to another branch of the subject. The 
limitation to the division of labor. These are of two 
kinds 1st, from the nature of the process^ and 2d, fro>)n 
other causes. 

* Babbage, on Economy of Machinery. 



LIMITATIONS TO THE DIVISION OF LABOR. 81 

I. From the nature of the process. Every process 
can be analyzed into its ultimate elements ; that is, into the 
varipus simple processes of which it is composed. Thus^ 
the straightening of a wire is one operation, the cutting it 
into equal lengths is another, the sharpening of the points 
is another, the heading of a pin is another, &c. But when 
we have reduced it to its simple operations, we can now 
proceed no farther. 'Hence, here is our necessary limit ; 
for it is no division of labor to employ two men to perform 
precisely the same operation. Hence, an establishment 
Avhich carries division to this limit, will be able from 
what has been said, to undersell another which does not 
carry it to the same degree of perfection. And hence, in 
establishing a manufactory, it is important so to adjust the 
number and kind of workmen, that, when the different 
operations of a process have been assigned to different per- 
sons, these persons may he in such proportions as exactly 
and fully to employ each other. The more perfectly this 
IS accomplished, the greater will be the economy. And, 
this having been once ascertained, it is also evident, that 
the establishment cannot be successfully enlarged, unless 
it employ multiples of this number of workmen. 

II. Division of labor may he lim,ited by other causes. 
These are : 1st. Capital. 2d. Demand. 

1. By Capital. Division of labor in mamifactures, 
cannot be carried on, unless the proprietor have sufficient 
capital to employ, at the same time, all the persons neces- 
sary to such a division, and to keep them so employed, 
until the proceeds of their work enable him to furnish them 
again with fresh material. This is, of caurse, a con- 
siderable outlay, and supposes a considerable accumula- 
tion of the proceeds of pre-exerted industry. Hence, in 
a poor, or in a new country, there is but little division of 
labor. No one has more than enough capital to employ 

11 



8Q LIMITATIONS TO THE DIVISION OF LABOR. 

himself, and perhaps one or two laborers ; and hence, eacli 
individual performs all the operations of each process, and 
frequently those of several processes. The same indi- 
vidual is the farrier, blacksmith, cutler, and perhaps 
wheelwright, for a whole settlement. To illustrate this 
by a single instance : If a nailer be able to purchase no 
larger amount of iron and coal than he can use in the 
manufacture of nails in a day, he must perform all the 
parts of the process himself; and, of course, must labor 
very disadvantageously. As soon, however, as he is able 
to double his capital, he may employ another person to 
work with him, and they may then introduce a division 
of labor. When he has tripled his capital, he may employ 
another workman, and carry his division still farther. He 
may thus go on, until he have reduced the process to its 
simplest elements. When he has gone thus far, the 
accumulation of his annual capital, Avill enable him to 
invest something in fixed capital. He will thus be able 
to purchase some of the simpler machines, by which some 
of the parts of his process may be executed. To these he 
will add others, as he advances in wealth, until his accu- 
mulated means enable him to combine them into one 
machine, for completing the whole process. Thus, he 
becomes a manufacturer, and derives the larger part of 
his revenue, from the use of his fixed capital. It is not 
pretended that all these changes always, or frequently, 
take place within the life-time of a single individual. 
The progress of society is not generally so rapid. Yet 
they sometimes occur, in the manner which I have stated. 
I giye the illustration, to show the tendency of things, and 
the power of accumulated capital. But, whether the re- 
sults are comprised in the life-time of one, two, or three 
individuals, the principle is the same. 

2. Division of labor is controlled by the demand for the 
article produced. Suppose that, in a given district, there 



LIMITATIONS TO THE DIVISION OF LABOR. S'A 

is a demand for one hundred pounds of nails per day, and 
that these can be made by two men. If three men could, 
by division of labor, make two hundred pounds per day, 
there would be but small gain, either to the workmen or 
to the public ; because these men would, of course, lie idle 
half of their time, and, for this time, they must be paid, as 
well as for the time in which they were employed. Or, 
if they did not lie absolutely idle, that portion of their time 
which was employed on other labor, would be of compara^ 
tively small value ; and they, by attending to other busi- 
ness, would lose the skill which complete division of labor 
confers ; and which is one of its principal benefits. The 
case is still stronger, if we take into view the fact, that 
division of labor supposes a large investment of fixed capi- 
tal, and that those who are educated to any manufactiu> 
ing business, can rarely employ themselves upon any thing 
else. ^ If the laborers at any of our manufactories were em- 
ployed only half the time, their Avages must be doubled ; 
for their families must eat one day, as well as another, and 
the interest of the whole investment must be charged upon 
half the quantity of product. These causes, together with 
the loss of skill in workmen, would more than double the 
price of products, and would, of necessity, carry back the 
division of labor, to its less perfect state. 

But this demand must depend upon several circum- 
stances. The most important of these are the following : 

1. The nuinher of tJie consumers. When the number 
of inhabitants is small, as in a newly settled country,' or 
in an isolated situation, the demand must, of course, cor- 
respond to their number. One hundred men will require 
but one-tenth as many hats, or shoes, as one thousand 
men. It is on this account that wealth accumulates 
most rapidly on navigable waters, because the market 
of the producers is not hmited to themselves, but may be 
easily extended to other places. 



84 LIMITATIONS TO THE DIVISION OF LABOR. 

2. By the loealth of the inhahitarits. Demand does 
not signify simple desire for an article, but desire ioi it, 
combined with the ability and willingness to give for it 
what will remunerate the producer. Hence, the greater 
the ability, in a given population, to remunerate the pro- 
ducer, the greater will be the demand. The demand for 
hats, in a population of one thousand men,would be limited 
to those persons in that population who ^aere able to buy a 
hat. The larger the proportion of such individuals, the 
better it would be for the hatter, and for every other pro- 
ducer. Hence we see, that every individual is interested 
in the prosperity of every other individual in the commu- 
nity. 

3. By the cost of the article. The greater the cost of 
a product, the smaller will be the number of persons who 
are able to purchase it. Hence, the less will be the de- 
mand ; and hence, also, the less opportunity will there be 
for division of labor. And, besides, the greater the cost 
of the article, the greater amount of capital is required, in 
order to produce it by division of labor. Hence, this 
cause operates in two ways to prevent the employment 
of this means of effecting the reduction of price. Thus, 
if a community consist of one thousand men, and of these, 
one hundred be worth one thousand dollars per year ; four 
hundred be worth five hundred dollars ; and the remain- 
der be worth but two hundred and fifty dollars per year ; 
and an article be produced within the reach of only the 
first of these classes, it can have but one hundred pur- 
chasers ; if it come within the reach of the second class, 
it will have five hundred ; and if it come within the reach 
of the third class, it will have one thousand purchasers. 
Hence it is, that division of labor is but sparingly used in 
the manufacture of rich jewelry, and in articles of expen- 
sive luxury ; while it is so universally used in the pro- 
duction of all articles of common use. Hence we see, 



LIMITATIONS TO THE DIVISION OF LABOR. rt5 

that the benefits of the use of natural agents and of 
division of labor, are vastly greater, and more important 
to the middling and lower classes, than to the rich. 
These means of increased production, reduce the cost of 
the necessaries and of the essential conveniences of life 
to the lowest rate, and, of course, bring thein, as far as 
possible, within the reach of all. 

4. By facilities of transportation. This is evident, 
from what has been said. The cost of an article depends 
not only on the cost of it?, original production, but also 
upon the cost necessary to bring it to the consumer. 
Coal may be very cheap at a coal mine, but if it must be 
borne on the shoulders of men to the consumer, it would, 
at a few miles from the mine, become so dear, that no one 
would be able to use it. The demand would be so small, 
that there would be no profit either in investing capital in 
machinery, or in employing division of labor to raise it 
from the mine. But if horses be used to transport it to 
the consumer, the demand will increase. Again, if, for 
horses, canals and railroads be substituted, it will become 
cheap, and the demand will increase still more ; and, with 
every such improvement, the circle of consumption ex- 
pands, of which the mine is the centre. The same prin- 
ciple applies to manufactures, specially those of iron or 
heavy ware, and it applies, just in proportion as trans- 
portation forms a large or a small part of the cost to the 
consumer. And thus, in general, we see the principle on 
which facilities for internal communication improve the 
condition of both the other branches of industry. For this 
reason, the price of land and of grain, rises in a district 
through which a canal or a railroad passes ; and for the 
same reason, nianufactories may, at one time, be success- 
fully established in situations, where they at another time 
would have been useless, if not ruinous to the proprietor. 
And, still more generally, we see how all the branches of 



86 DIVISION OF NATIONAL LABOR. 

labor mutually assist each other. A railroad or a canal can 
never profitably be constructed in a country where there 
is nothing to be transported. But where agriculture, 
manufactures and commerce are productive, and hence 
require a large amount of transportation, there, these facili- 
ties are immediately in demand. Were Liverpool and 
Manchester to decline, of what use would be the railroad 
between them ? And, on the other hand, the railroad 
between them, by reducing the cost of all articles bought 
and sold, diminishes the cost of living in both places, 
enables the producer to come into market with greater 
advantages, increases the profit in all kinds of industry, 
facilitates the accumulation of capital, and thus adds 
greatly to the annual revenue of both cities. 

I have thus far considered the division of labor, as it 
exists among the inhabitants of the same place, and in the 
same situation. The same principle, however, applies to 
people of different districts. Here, it is not merely a 
matter of choice, but, in a great measure, of necessity; 
that is, it is required by the very conditions of our 
being. 

It is manifest that the different portions of the same 
country possess different facilities for producing the ob- 
jects of human desire. No district possesses advantages 
for producing every thing. And yet more, almost every 
district possesses peculiar facilities for producing some- 
thing. Now, natural advantages are clearly nothing more 
than means of increased productiveness of labor, in the 
creation of any particular product. If one soil will pro- 
duce forty bushels of wheat to the acre, with the same 
labor that another will produce twenty, the labor of the 
first is twice as productive as that of the second ; that is, 
the owner of the one has a machine, by which he can, 
with the same labor, produce twice as much as his neigh- 



DIVISION OF NATIONAL LABOR. 87 

bor. But, perhaps the soil which will produce only 
twenty bushels of wheat, Avill produce forty bushels 
of corn per acre, while the other soil will produce only 
twenty. This second soil is, therefore, an instrument 
which gives a double productiveness to labor, in the 
raising of corn. Now, it is manifest, that if each one 
devotes himself to the production of that for which nature 
has given him peculiar facilities, his amount of production 
will be greater, he will himself be richer, and the whole 
community will be supplied at a diminished cost. Sup- 
pose each occupied twenty acres, and each produced the 
crop for which he had the greater advantages ; the result 
would be, 20x! 40=800 of wheat, and the same of corn ; 
=800 bushels of wheat, and 800 of corn. Suppose, again, 
they divided their crops, and each appropriated ten acres 
to wheat, and ten to corn ; the result would be, lOx 40= 
400 wheat and 10>^ 20=200 of corn, and lOx 40=400 of 
corn, and 10><1 20=200 of wheat ; that is, 600 of wheat, 
and 600 of corn ; that is, there would be 600, instead of 
800 bushels of each raised, and the loss to both, and to 
the community, would be 200 bushels of each a year: 
By so much would they both be poorer than by devoting 
themselves wholly to that product for which each had the 
greatest natural advantages. 

Or, to take another case. Suppose one district rich in 
soil, and adapted to the production of wheat, but level and 
far inland, and therefore, unadapted, by position, and want 
of the proper natural agents, to the production of manu- 
factures ; and another district, on the sea board, hilly and 
sterile, adapted to manufactures, but unadapted to the 
culture of wheat. On the first, with one day's labor, a 
man may raise two bushels of wheat ; but could produce 
but four yards of cloth. On the other, by the same labor, 
a man can produce twelve yards of cloth, but can raise but 
one bushel of wheat. Now, it is manifest, that by each 



88 DIVISION OF NATIONAL LABOR. 

district's devoting its labor to that kind of production, for 
which it has the greatest natural facilities, the production 
of the whole country will be increased. It is also evi- 
dent, that a man in the wheat district will provide him- 
self with cloth at a cheaper rate, by raising wheat, and 
procuring cloth by exchange, than by man^facturing it 
himself; and on the other hand, that the manufacturer 
will provide himself with wheat, at a niuch cheaper rate, 
by making cloth, than by raising wheat himself. Thus, 
by this form of division of labor, the productive power of 
both is increased ; their desires are gratiiied at the ex- 
pense of less labor ; and thus, both are rendered richer 
and happier. " 

All this seems obvious, if only the several districts of 
the same country be compared. And it is obvious, be- 
cause every one perceives that God has bestowed upon 
different districts of the same coimtry, different advanta- 
ges, which it is for the interest of that country that each 
district should improve to the utmost. But every one 
may see, that the same principles apply to different nations 
inhabiting the different quarters of the globe. The sepa- 
ration of the earth into warring nations, is nothing but the 
arbitrary work of man : it alters neither the qualities nor 
the relations which God has given to things, nor the laws 
under which he has constituted man. If a man own a 
farm, of which one part is suited only to tillage, and 
another part only to grazing, and he divide it, and sell 
the pasture land to his neighbor ; this does not alter the 
nature of the soil. Will it not be just as profitable to ap- 
propriate each part to the purpose for which God designed 
it, after the purchase, as before. ? 

Every man needs, for the gratification of his innocent 
desires, nay, for his conveniences and even necessaries, 
the productions of every part of the globe. To be con- 



DIVISION OF NATIONAL LABOR. 8ft 

viiiced of this, we have only to enumerate the articles 
which furnish our houses, the food that covers our tables, 
and the raiment which clothes our bodies. How greatly 
Avould all our means of happiness be diminished, were we 
deprived of the iron, the furs, and the hemp of the North ; 
the coifee, teas, sugar, rice, fruits, and spices of the South ; 
or the wool, the wheat, and the manufactures, of temperate 
climates. Every one must be convinced that the happi- 
ness of every man is increased, in proportion as he is fur- 
nished with the greatest number of these objects of desire ; 
and furnished with them, in their greatest perfection, and 
at the cheapest rate. 

But, it is evidently the will of our Creator, that but few 
of these objects, every one of which is necessary to the 
happiness of every individual, should be produced except 
in particular districts. Others, if they can be produced in 
several places, can be produced much cheaper, and in 
greater perfection, in some places than in others. Every 
part of the globe possesses peculiar advantages for the pro- 
duction of something ; but no part possesses advantages 
for the production of every thing. Hence we see, on the 
principle illustrated above, that the annual production of 
the globe will be greatest ,• that is, there will be the largest 
amount annually to the share of every individual ; that is, 
every individual will be richer and happier, when each 
portion of the globe devotes itself to the creation of those 
products for which it has the greatest natural facilities. 
If a man in NevV York can raise, by one day's labor, one 
hundred pounds of flour, but could not raise more than 
one ounce of coffee ; and a man in Cuba can raise twenty- 
five pounds of coffee, but cannot raise more than one pound 
of flour, and they exchange, as we have before seen they 
must exchange, labor for labor ; the one will produce, by a 
day's labor, twenty-five pounds of coffee, instead of an 

12 



9Q DIVISION OF NATIONAL LABOR. 

ounce ; and the other, one hundred pounds of flour, in- 
stead of a pound. Is not this better than for the New 
York farmer to raise his coff"ee in a hot-house, at the ex- 
pense of a day's labor for an ounce ; and the West Indian 
to raise his wheat on the mountains, at the expense of a 
day's labor for a pound ? Such are the advantages of that 
division of labor suggested by geographical position. 

And the final cause of all this is evident. God intended 
that men should live together in friendship and harmony. 
By thus multiplymg indefinitely their wants, and creating 
only in particular localities, the objects by which those 
wants are supplied, he intended to make them all neces- 
sary to each other ; and thus to render it no less the in- 
terest, than the duty of every one, to live in amity with 
all the rest. 

Nor is the application of this principle confined to geo- 
graphical localities. The simple fact thai a nation pos- 
sesses facilities, be they either natural or acquired, for 
creating any product at a cheaper rate than any other 
nation, is a reason why that nation should devote itself 
to the creation of that product ; and why another nation 
should, for the same reason, improve its own peculiar 
advantages. Thus, there are certain states of society, 
and certain amounts of accumulation of capital, most 
favorable to the creation of certain products. A nation in 
this state, and with this accumulation, can furnish these 
products cheaper than her neighbors ; and this is a reason 
they should purchase them of her. Could not one of our 
old States supply one of the new States with manufac- 
tures, cheaper than the new State could produce them 
itself? And is not this a reason why the new State 
should procure them by exchange, rather than by direct 
production ? Is it not cheaper for an Indian to buy a rifle 
of an European, than to attempt to make one for himself? 



DIVISION OF NATIONAL LABOR. 91 

This is, however, by no means to assert that such 
arrangements and relations are to be permanent. As a 
country accumulates fixed capital, it creates its own facili- 
ties for creating every kind of manufactured product. One 
nation will naturally begin to do this at the same point of 
accumulation at which another began to do it. And 
the way in which to arrive at this point the soonest, is to 
become rich as fast as possible ; that is, to buy as cheap as 
we can, or, in other words, to procure, annually, as many 
objects of desire as possible, for a given amount of labor. 
A tribe of Indians would much sooner be able to make rifles 
for itself, by purchasing, at first, rifles of an European, than 
by determining that it would never use rifles, until it could 
manufacture them for itself. As the use of a rifle would 
render industry more productive, and thus render the tribe 
richer, it would bring them one step nearer to that degree 
of accumulation, at which they might begin to make rifles 
for themselves. But the resolution not to purchase of oth- 
ers, would have no such tendency, inasmuch as it would do 
nothing whatever towards accumulating production ; but 
would, on the contrary, shut them out from the very means 
offered them for most rapidly benefitting their condition. 

To sum up what has been said. It will be seen that 
production will be increased ; that is, men will be richer, 
and therefore may be happier, as the following conditions 
are complied with : 

1. As the laws of nature, designed by our Creator for 
our benefit, are understood ; 

2. As the means are devised for availing ourselves, in 
the most successful manner, of the utility of these laws ; 

3. As the human labor necessary to be expended, is so 
arranged as, with a given expenditure, to produce the 
greatest and most perfect result ; and 



92 EFFECTS OF INCREASED PRODUCTlVEiN^ESS. 

4. As the inhabitants of the earth in different locahties, 
devote themselves most exclusively to the production of 
those objects, of desire, for the production of which they 
have received, either directly or indirectly, from their Cre- 
ator, the greatest facilities. 

Or, still more generally, production will be abundant ; 
that is, man will enjoy the means of physical happiness, 
in proportion to his individual industry, both of mind and 
body ; and to the degree of harmony and good feeling 
which exists between the individuals of the same society,- 
and also between the different societies themselves. 



SECTION IV. 

EFFECTS OF THE INCREASED PRODUCTIVENESS OF HUMAN 
INDUSTRY. 

This subject has been already so frequently alluded to, 
and all the points on which it depends so distinctly stated, 
that it will not be necessary to examine it so fully, as 
might otherwise be required. 

The result of industry applied to capital is pi^oduct, 
value, or the means of gratifying human desire. The 
result of increased productiveness of human industry, is, 
with the same labor, increased product, value, or means 
of gratifying human desire. That is, in general, increased 
productiveness is equivalent to increased means of human 
happiness. This simple statement would seem sufficient 



EFFECTS OF INCREASED PRODUCTIVENESS. 9:i 

to explain the whole subject. In order, however, to ob- 
viate any objections that may arise, we will proceed to 
show its practical operation, by several illustrations. 

Take the case of a single individual. Suppose a man, 
by the same amount of labor that he spent last year, to be 
able this year to create twice as much value. Suppose 
that a farmer has twice as large a harvest ; that is, that 
his instrument is twice as good this year as it was last 
year. The result is, he will be able to satisfy the desire 
which that product gratifies, twice as abundantly as he 
did last year. He will have more to exchange with 
other producers, and hence he v/ill be able to gratify 
other desires more abundantly. He will be able to make 
exchanges Avhich were before out of his power ; hence, 
he will be able to add to his mode of living, new means 
of happiness. And, on the other hand, as he is able to 
make exchanges with others with whom it was before 
impossible, others in return, are able to avail themselves of 
his product, or means of happiness, who were before 
unable to do so. Hence, he is not only happier himself ; 
but the very means by which he becomes so, renders him 
the instrument of greater happiness to others. Hence, it 
is a benefit to a whole neighborhood, for a single member 
of it to become rich. In other words, increased produc- 
tiveness in one branch of labor, increases productiveness 
in every branch' of labor. 

Let us call this first individual A, and suppose that 
before the productiveness of his labor had been increased, 
he exchanged with another individual B, on equal terms. 
If the labor of A and B were 10 per day, they would 
exchange with each other at the rate of 10 for 10. But, 
suppose now, that by some new invention, A's labor pro- 
duced 20 per day. He would offer to exchange on the 
same terms as before, but he would offer 20, and expect 



1)4 EFFECTS OF INCREASED PRODUCTIVENESS. 

from B 20 in return. But, in consequence of the inferior 
productiveness of B's labor, he would not be able to pur- 
chase so much ; he could afford to buy only 10, as before. 
A, therefore, in order to induce him to exchange, that is, 
to buy, would abate his price ; that is, would offer to 
exchange on better terms, and would offer him at the rate 
of 20 for 15, or in some such proportion. What B would 
not purchase at the rate of 10 for 10, he might be willing 
to purchase at the rate of 15 for 20. Thus, we see, they 
would, in this case, share the benefit between them. But 
let the labor of B now be increased in productiveness, so 
that it shall be equal to that of A ; that is, be also at the 
rate of 20 per day. They will now exchange at the same 
rate as before ; that is, at the rate of 20 for 20, with this 
difference, that for one day's labor, they will both have 
twice as many objects of desire as before, or as many 
objects of desire, with half a day's labor; that is, both 
will be twice as rich as before. Thus, the increased 
productiveness of B, is now a benefit to A, inasmuch as 
he now receives 20 for 20, when before, he only received 
15 for 20. Now it needs but a little reflection to perceive, 
that the case of A and B, is the case of the whole com- 
munity. 

But the case is made still stronger, when the effect of 
competition is taken into the account. Let the produc- 
tiveness of labor in any department be ever so great, where 
labor and capital are free, competition will always reduce 
profit in one department, to the same average per cent, 
that it affords in other departments. Hence, let the pro- 
ductiveness of labor and capital, in any one mode of 
employment, be ever so great ; interest and wages in that 
employment, will be no higher than they are, other things 
being equal, in other employments. That is, while the 
capitalist and the laborer receive the same interest and 
wages as the rest of the community ; in other words. 



EFFECTS OF INCREASED PRODUCTIVENESS. 95 

while the community pay no more for this capital and 
labor than they pay for any other, they receive a greater 
amount of value in exchange, and, as much more, as the 
productiveness of that labor and capital has been increased. 
Thus, capital and labor in the cotton manufacture is not 
better paid, -upon an average, than in other modes of invest- 
ment and industry. If it were, capital and labor would 
flow into it, until the equilibrium was restored. But, 
while this is the fact, we obtain a yard of cotton cloth 
for one fourth the price, or at one fourth of the labor, at 
which we formerly obtained it ; that is, we receive four 
times as much as formerly, in return for what we pay for 
the cost and labor of making cotton cloth. And thus, 
over the whole world, every instance of increased produc- 
tiveness, whether it be from the use of natural agents, or 
from the division of labor, whether in our own country, 
or in another country, if we choose to avail ourselves of 
it, enables every man, by paying the producer the same 
as before, to procure a larger amount of value ; that is, of 
objects for the gratification of desire ; that is, enables every 
man to become both richer and happier. 

The above remarks will, I hope, be suflicient to illus- 
trate the general principle. As, however, there are seve- 
ral consequences resulting from increased productiveness 
of human labor, especially from the use and improvement 
of natural agents, which seem at first view to be at variance 
with what we have here advanced, it may be necessary 
to pursue the results somewhat more minutely, and to 
consider the objection commonly made, that the use of 
labor-saving machinery is prejudicial to the interests of 
the laboring classes. 

It may, however, be here premised, that the objection 
made against natural agents, is not to their use, but to 
their improvement. Men object to the use of a spinning 



m EFFECTS OF INCREASED PRODUCTIVENESS. 

Jenny, but not against the use of a spinning wheel. They 
disHke a rake by horse power, but do not dislike a rake. 
But every one must see, that this sort of objection, if it be 
founded in truth, is by no means sufficiently extensive. 
A spinning laheel, or a hmid loom, or a hand rake, is a 
labor-saving machine ; and it involves the use of natural 
agents, just as truly as as spinning jew wy, 3, power loom, 
or a horse rake. If the use of natural agents be injurious, 
we should abandon it altogether, and spin, and weave, 
and rake, with our fingers. But if this would be unwise, 
and it be conceded that we must use natural agents, in 
some form or other, why not use the best that we can 
procure ; that is, the best that God has given us ? If, as 
all must allow, the use, up to a certain point, has been an 
incalculable benefit, what reason have we to suppose, that 
additional improvement in the use of them will not be still 
additional benefit. 

But, passing this, I proceed to consider the effects of 
increased productiveness of labor, both upon Producers 
and Consumers. 

I. The effect of natural agents upon Producers. 

These are either iminediate, or ultimate. 

1. Imonediate. It is said that every improvement in 
machinery enables the work to be done by fewer laborers, 
and hence many persons are thrown out of employment ; 
and that every change in the 'inanner of labor, deprives 
many persons of the use of that skill, which is their whole 
means of subsistence. 

So far as change in the manner of labor is concerned, 
but little need be said, as this is but a temporary incon- 
venience. If a new kind of work is to be done, some 
person must learn to do it. and must be paid for learning. 



EFFECTS OF INCREASED PRODUCTIVENESS. 97 

ir a man do not choose to learn it, although he would be 
paid for learning it, and be supported by his labor, after 
lie has learned it, it is his own fault. He may quarrel 
with his own obstinacy, but he has nothing else to blame. 
Nor, is the simple change of employment a pecnliar hard- 
ship. Few men pass through life, without, at some time 
or other, materially modifying their mode of employment, 
from choice, instead, of from necessity. 

The main difficulty, therefore, which is supposed to 
result from the use of improved methods of production, is, 
that they employ a less number of laborers ; and, hence, 
that many laborers are thrown out of employment. 

In reply to this it might be asked, what is the testi- 
mony of facts, in this case. Improvements in machinery 
have been going on, ever since the creation. Has the 
demand for labor diminished ? Improvements have been 
made in particular districts. Have the laborers been, by 
these means, driven away ; or, on the contrary, are not 
these the very districts, to which they inevitably resort 
for employment ? 

But, aside from this, let us examine the assertion, that 
some laborers are thrown out of employment. Let us, 
however, first endeavor to ascertain how great the evil is. 

1. It is not imiversal. The improved mode of labor 
always requires some labor, and, of course, ?, portion of 
those formerly employed must still find employment. 
To these, there results no other disadvantage, than that 
of a change in the mode of employment ; but with the 
meliorating circumstances of higher wages and less 
fatiguing labor. 

2. It is, by necessity, gradual. Improvements in ma-^ 

13 



98 EFFECTS OF INCREASED PRODUCTIVENESS. 

chinery, are made by slow degrees. Although the total 
change may show a greatly increased productiveness of 
labor, yet no one single change is often, of itself, great 
enough to produce a great change in the demand for 
laborers. Again : Let the change be ever so great, it 
cannot be introduced at once, over a whole nation. 
Hence, its effects will be, at first, to reduce the wages of 
those engaged in the former methods of manufacturing. 
The consequence will be, that no new laborers will learn 
the trade. This will tend to keep up the wages of those 
who remain in it. And, lastly : If a new instrument is to 
be employed, there must be an additional number of men 
employed to manufacture it. This will, of course, require 
an additional number of laborers, who must be withdrawn 
from other employments. This will tend to raise the price 
of labor, and, of course, either to furnish employment for 
those who wish to leave the former occupation, or else to 
keep up their wages while they remain in it. 

3. The infelicity here spoken of, is no other than that 
which belongs to the tenure of all property whatsoever. 
Skill and labor, as well as capital, are always liable, in the 
revolutions of society, to depreciate in value, or even to 
become worthless. " Riches make to themselves wings, 
and flee away." The wisdom of man, since the creation, 
has never yet discovered any link strong enough to con- 
nect a human being, indissolubly, with any sublunary 
possession. The laborer, therefore, in this case, holds 
his property precisely as any other man holds it, and is 
subject to no peculiar hardship. 

Let us however proceed to consider the ultimate effects 
of increased productiveness upon producers. 

1. The producer shares with the rest of the commu- 
nity in the benefit derived from increased productiveness ; 



EFFECTS OF INCREASED PRODUCTIVENESS. Dtf 

that is, if he earn the same wages as before, he is richer ; 
and, if he earn less, he is less poor than he would have 
been, if no such change had taken place. That is to say, 
money, or, in other words, a given amount of labor, is 
capable of procuring for him a greater amount of obj ects 
of desire, than before. 

2. From this increased productiveness, there must be, 
throughout the whole community, an increased demand 
for labor. Suppose a community of one hundred men to 
acquire, by their labor and capital, every year, just enough 
to support themselves, after defraying the expenses of their 
several establishments. So long as this state of things 
continued, there would be no increased demand for labor- 
ers ; for there would be no additional capital with which 
to maintain them. The young must therefore emigrate, 
or else there will be a competition among laborers for 
work, and thus wages will fall. But, suppose, that by 
some new mode of increased productiveness, the capital 
be increased, in a single year, twenty-five per cent., there 
will then be a demand for the industry of a greater 
number, say twenty-five additional laborers ; since this 
additional capital can produce nothing, unless it be united 
with labor. If there be not twenty- five additional labor- 
ers to be immediately procured, wages must rise, because 
there will be a competition between capitalists for labor ; 
and children and persons, who with the former prices could 
earn nothing, will now be employed. And, if the demand 
for labor, arising from this increase of capital, could not be 
thus supplied, those engaged in less profitable employ- 
ment in other districts, and other countries, would come 
in to supply the deficiency. Such is always seen to be 
the fact. Population follows capital. It goes where capi- 
tal goes, and it concentrates where capital accumulates, 
and it leaves when capital leaves. And hence, in a whole 
country, where the number of inhabitants is limited, the 



100 EFFECTS OF INCREASED mODUGTlVENESS. 

increase of capital must raise the rate of wages. And 
hence, by just so much as increased productiveness of 
labor increases the amount of capital, must it also tend to 
raise the price of labor throughout a whole country. 
That is to say, the obvious tendency of the use of natural 
agents is, to increase the wages of laborers in general. 

3. But, thirdly ; the tendency of the use of machinery 
is to increase the wages of laborers, in that very depart- 
ment of industry, in which they are employed. The 
reason for this is obvious. Reduction of price produces 
an additional demand, more than sufficient to compensate 
for the diminished amount of labor necessary for the crea- 
tion of the particular product. That this must always be 
the case, can, I think, be conclusively shown. 

Suppose that with the present machinery, one hundred 
men are able to manufacture cotton cloth at fifty cents per 
yard, and that the amount which they produce is precisely 
sufficient to supply the wants of the district for which they 
labor. At this price, no consumers, but those worth one 
thousand dollars per year, can afford to purchase cotton 
cloth, and, of course, the demand is limited exclusively to 
them. Suppose now, that improved machinery enables 
fifty men to manufacture as large an amount of cotton 
cloth as one hundred men could manufacture before, and 
the consequence is, that cotton cloth is sold at twenty-five 
cents per yard. It is evident, that if the demand be pre- 
-cisely doubled, there will be wanted just as many laborers 
as before ; so that their condition will be in no manner 
altered, except by change of labor, with its correspondent 
advantages, and the gradual rise of wages, spoken of 
above. And, it is also evident, that every degree of in- 
crease of demand, beyond lohat is sufficient to produce 
this equilibrium, must be for the benefit of those engaged 
in this sort of labor. 



EFFECTS OF INCREASED PRODUCTIVENESS. 101 

But it is evident, for several reasons, that the reduction 
of price one half, must more than double the demand for 
cotton cloth. Thus, when the price was fifty cents per 
yard, only those consumers worth one thousand dollars per 
year, could purchase cotton cloth ; and the sale was, of 
course, limited to them. But now that it is at twenty-five 
cents, the class worth only five hundred dollars per year 
is just as able to purchase it, as those worth one thousand 
were formerly. Now, if this class were only of the same 
mnnber as that worth one thousand, the demand would 
be doubled, and, of course, the laborer would suffer no 
injury. But the fact is, that the class worth five hun- 
dred dollars, is three or four times as large as that worth 
one thousand. Hence, by all this difference, the laborer 
is the gainer, and a larger number of laborers is required. 
But this is not all. There are various classes between 
those worth one thousand dollars, and those worth five 
hundred dollars, as, those of nine hundred and fifty, eight 
hundred, seven hundred, and six hundred, each one of 
them larger than the class of first purchasers, who now 
can purchase the article. All these unite to increase the 
demand for this kind of labor. And again : The class 
worth one thousand dollars will now use much more 
cotton cloth than formerly ; and cotton cloth will now 
be used for purposes to which it could never before have 
been appropriated, and it will supersede the use of many 
articles, with which it could never before have come into 
competition. All this is to be added to the benefits con- 
ferred, by the introduction of machinery, or by increasing 
the productiveness of labor, upon the laborers in this par- 
ticular department. Every one must see that this benefit, 
thus resulting from increase of demand, which is the 
thing now in dispute, is absolutely incalculable. 

It may be said, that this is an exaggerated case, t 
answer: The case is not given for the sake of accuracy 



102 EFFECTS OF INCREASED PRODUCTIVENESS. 

in numbers, but for the sake of illustrating a manifest 
tendency. And, that, in this respect it is accurate, the 
whole history of manufactures bears ample testimony. 
Compare those states of society in which machinery is 
not used, with those in which it is used, and inquire in 
which of them the wages of the labored are higher, and in 
which his habitation displays the greater number of com- 
forts, and in which his shelf is covered with the greater 
number of books. Examine the statistics of a particular 
branch of manufactme, and inquire in what period there 
has been, in proportion to the whole population, the 
greatest number of laborers required in that particular 
manufacture. Has this demand for this particular kind 
of labor been greater in the period when natural agents 
and machinery have been used, or in that in which 
they have not been used ? The answer to these 
questions is given in the history of the progress of the 
€otton manufacture, the manufacture of books, of nails, 
of pins, and every other article of common use ; and these 
alone are of any consequence in such an estimate. This 
shows that the above illustration is tj^iie, so far as it 
teaches the tendency, which is all that is necessary in 
the present case. 

But this is not all. Suppose the demand for cotton cloth 
be doubled, there must be twice the amount of cotton pro- 
duced ; twice as ma,ny vessels built, to transport it ; twice 
as many men to navigate them ; besides the number of 
men required to construct machinery to fabricate it. Sup- 
pose the number of books be doubled ; there must be twice 
as much paper made, twice as many rags purchased, twice 
as many types made, and twice as much transportation 
required for the supply of the market. All this must add 
to the demand for labor, and must tend, by just so much, 
to increase the wages of the operative. And hence, if 
these considerations be compared, it will be seen, 



EFFECTS OF INCREASED PRODUCTIVENESS. 103 

1. That the introduction of machinery reduces the price 
of articles of consumption; that is, renders the wages, 
whatever they may be, of the operative, of more value. 

2. That, by the more rapid multiphcation of capital, it 
produces a greater demand for labor in general that is, it 
makes the wages of all labor greater ; and 

3. That its tendency is to create an increased demand 
for labor ; that is, to produce a rise of wages in that depart- 
ment of industry, into which natural agents are specially 
introduced ; and it does this according to the degree in 
which they are introduced. That is, in general, the in- 
troduction of machinery renders the wages of the laborer 
more valuable ; it raises the Avages of labor m general, 
and raises the wages of labor specially, in that department 
into which natural agents are introduced. What any man 
can reasonably ask for, more than this, I do not distinctly 
perceive. 

II. The effects of increased productiveness upon co7i- 
sumers may be easily explained, on the principles already 
illustrated. I need not, therefore, enlarge upon this sub- 
ject, as it has already been so frequently alluded to. 

1. By increased productiveness, every consumer is 
richer ; that is, he is able, by the same amount of labor, 
to procure a greater amount of the objects of desire. This 
is evidently the same thing to him, as though his income 
were increased. If I am able, this year, with two hundred 
dollars, to purchase as much as I could purchase last year 
for four hundred dollars, and I can earn two hundred dol- 
lars as easily as before, it is precisely the same thing, as 
if, at the former prices, my wages had risen from two 
hundred to four hundred dollars. 



104 EFFECTS OF INCREASED PRODUCTIVENESS. 

2. Production is more perfect. This has ah'eady been 
ilhistrated, as one of the effects of the use of machinery ; 
that is, the consumer not only obtains more of the same 
article for the same sum of money, but he also obtains a 
better article. Every one must have observed, that cali- 
coes, crockery, and many other articles of ordinary con- 
sumption, are not only much cheaper, but also much more 
beautiful, than they were a few years since. 

3. A vast number of articles is thus added to the means 
of happiness of the human race, of which, otherwise, they 
must, from necessity, have been deprived. All that we 
possess, above the comforts of the naked savage, is the 
result of the use of natural agents, and of division of 
labor ; that is, of the increased productiveness of human 
labor. 

4. Nor is this all. While all the labor of man is neces- 
sary to support mere physical existence, there can be no 
opportunity for intellectual cultivation. As soon, how- 
ever, as he arrives at that condition of productiveness of 
labor, in which he is able to provide for his physical 
wants, with less than all his time and effort, opportunity 
is afforded for intellectual development. At this point, 
then, commences the dawn of intellectual improvement. 
As increased productiveness affords more and more leisure, 
improvement advances. As soon again as, by improved 
intellectual power, man begins to discover and apply the 
laws of nature, a vast accession is made to the power of 
human productiveness. Henceforth, these two forces con- 
spire to assist each other. Increased productiveness, affords 
increased time for investigation, discovery and iuA^ention ; 
and discovery and invention increase the power of produc- 
tiveness. The more actively these act and re-act upon 
each other, the more rapid is the progress of society, and 



EFFECTS OF INCREASED PRODUCTIVENESS. 105 

the more rapidly accelerated is the movement of civiliza- 
tion. 

If this be so, we see how puerile is the prejudice which 
frequently exists against the use of labor-saving ma- 
chinery, since the introduction of such machinery, more 
than any thing else, tends permanently to improve the 
condition of the laborer. We see, also, how groundless 
is the opinion, that education and science are without 
practical benefit, and that philosophers and students are 
merely a useless burthen upon the community; since it 
is knowledge which has given to us all the advantages 
which we possess over savages, and it is the application 
of that knowledge, which furnishes employment for nine- 
tenths of the whole community. We see, also, how short- 
sighted is that national selfishness, which desires to limit 
and restrict the intercourse between nations ; since it is 
for the interest of each nation to improve to the utmost 
its own advantages, and to procure, by exchange with 
other nations, those productions for the creation of which 
it possesses, by nature, inferior facilities. 



14 



CHAPTER THIRD. 

OF THE LAWS WHICH GOVERN THE APPLICATION OF 
LABOR TO CAPITAL. 

We have, thus far, considered capital and labor, sepa- 
rately, and have endeavored to analyze the nature and 
functions of each. It is manifest, however, that we have 
not yet exhausted the subject. In many countries, a vast 
amount of capital and of labor has never, yet been em- 
ployed. In other countries, capital and labor have been 
united at different periods, with different degrees of 
activity. Hence, while some nations have rapidly accu- 
mulated wealth, the wealth of others has remained, for 
years, stationary ; and in others, it has diminished. The 
most fertile soils of Europe and Asia, once the garden of 
the world, now under the despotism of Turkey, scarcely 
maintain their sparsely settled inhabitants. It remains 
for us, therefore, to proceed with our investigation, in 
order, if possible, to ascertain the laws which influence 
the application of labor to capital. 



CONDITIONS OF PRODUCTION. 107 



SECTION I. 

THE CONDITIONS OF OUR BEING, ON WHICH, THE LAWS 
ON THIS SUBJECT ARE FOUNDED. 

Ill order to arrive at the truth with the greater certainty, 
it will be proper to consider the circumstances under which 
man is placed, with reference to the universe around him, 
so far as this subject is considered. 

1. God has created man with physical and intellectual 
faculties, adapted to labor. He has given us a mind, 
adapted to investigate the laws of the universe, and a 
body adapted to perform all those operations, by which, 
in obedience to those laws, the objects of desire may be 
produced. 

2. Labor has been made necessary to our happiness. 
No valuable object of desire can be procured without it. 
Intellectual power cannot be attained without intellectual 
discipline ; nor knowledge of the laws of nature, without 
study. Neither physical comforts, nor even physical 
necessaries, can be obtained, unless labor be first expended 
to procure them. The universal law of our existence, is, 
" In the sweat of thy face shalt thou eat thy bread, until 
thou return to the ground." 

3. Labor is necessary to the healthful condition of our 
powers, both physical and intellectual. Without intel- 
lectual labor, the mind becomes enfeebled ; and, were this 
labor wholly intermitted, it would sink into idiocy or mad- 
ness. Without physical labor, the body, feeble and ener- 
vated, becomes a prey to pain and disease. 



108 CONDITIONS OF PRODUCTION. 

4. That labor, per se, is pleasant, it is not necessary to 
assert. It is sufficient to our purpose, that it is less painful 
than idleness and the results of idleness. The laborer 
complains of his toil, but, deprive him of his opportunity 
for toil, and he becomes miserable. When men are, in 
our penitentiaries, condemned to solitary confinement, 
and labor or idleness are left purely to their own choice, 
they have never been known to continue longer than a 
few days, without beseeching, importunately, for work. 
The veterans who are supported at the Greenwich Hos- 
pital, England, at the public expense, wholly without 
labor, are said to be, in general, very unhappy. The 
uncontrollable desire of children, for some sort of employ- 
ment, illustrates the same truth. Those persons who con- 
sider labor as degrading, obey the same law of our nature, 
in another form. The gymnastic exercises of the Greeks 
and Romans, and the hunting, riding, shooting and travel- 
ling of the moderns, are nothing more than expensive 
modes of exercise or labor. The poor man exercises 
himself, the rich man employs a horse to exercise him. 
The one does, expensively and unproductively, what the 
other does, without expense and productively. Both 
equally, yield obedience to the law of our creation ; and, 
in what manner soever it is obeyed, both reap advantages, 
from the mere fact of obeying it. 

5. On the contrary, the Creator has affixed several 
penalties, which those, who disobey this law of their 
being, can never expect to escape. He who refuses to 
labor Avith his mind, suffers the penalty of ignorance. 
The amount of this penalty may be estimated, by con- 
sidering the blessings, both physical and intellectual, of 
Avhich ignorance deprives us; and by contrasting the 
comforts of savage, Avith those of civilized nations, Avhere 
the physical effort, made by both, is the same. He who 
jefuses (o labor Avith his hands, suffers, besides the pains 



CONDITIONS OF PRODUCTION. 10!) 

of disease, all the evils of poverty, cold, hunger and naked- 
ness. The results which our Creator has attached to idle- 
ness, are all to be considered as punishments, which he 
inflicts for the neglect of this established law of our 
being. 

6. And, on the other hand, God has assigned to indus- 
try, rich and abundant rewards. " The hand of the dili- 
gent maketh rich." '' Seest thou a man diligent in his 
business, he shall stand before kings ; he shall not stand 
before mean men." The pleasure, the independence, and 
the power arising from knowledge, are the rewards of 
intellectual industry. " A ivise man is strong, yea, a 
man of understanding increaseth strength.'^ And, it is 
only by physical labor, that the riches of the earth are 
appropriated, and the laws of nature made available to the 
happiness of man. At the first, there existed nothing in 
our world but the earth, with its spontaneous productions, 
and capabilities, and helpless and defenceless man. All 
that now exists of capital, of convenience, of comfort, and 
of intelligence, is the work of industry, and is the reward 
which God has bestowed upon us, for obedience to the 
law of our being. 

7. If such be the facts ; if God have given to all men 
faculties for labor ; if he have made labor necessary to our 
happiness ; if he have attached the severest penalties to 
idleness, and have proffered the richest rewards to indus- 
try ; it would seem reasonable to conclude, that all that 
was required of us, was, so to construct the arrangements 
of society, as to give free scope to the laws of Divine 
Providence. If he have excited us to labor by sufficient 
rewards, and deterred us from indolence by sufficient 
penalties, it would seem that our business must be, to 
give to these rewards and penalties their free and their 
intended operation. These, at any rate, should be the 



110 CONDITIONS OF PRODUCTION. 

means first tried, in order to facilitate production ; nor 
should any others be resorted to, until these have been 
tried and found ineifectual. 

The effects of this constitution, under which we are 
placed, will, I think, be fully exerted, ni proportion as the 
following conditions are observed : 

1. As every man is permitted to enjoy, in the most 
unlimited manner, the advantages of labor. 

2. As every man suffers the consequences of idleness. 
And, these being equal, 

3. Labor will be applied to capital, according to the 
ratio which subsists between the whole amount of capital, 
and the whole number of laborers ; that is, the greater the 
ratio of capital to the number of laborers, the more active 
will be their industry, and vice versa. And, 

4. Labor will be applied to capital, in proportion to the 
knowledge which men possess of the advantages which 
they shall obtain by labor ; that is, the greater the intelli- 
gence, the greater the industry. To these several topics, 
the remaining sections of this chapter will be devoted. 



FREEDOM OF LABOR AND CAPITAL. ili 



SECTION 11. 

INDUSTRY WILL BE APPLIED TO CAPITAL, AS EVERY MAN 

ENJOYS THE ADVANTAGES OF HIS LABOR 

AND HIS CAPITAL. 

Although God has designed men to labor, yet he has 
not designed them to labor without reward. Hence, 
when men devise some form of labor, even for exercise, 
they always connect with it some result, as the game of 
the huntsman, the watering place of the traveller or tourist, 
or the reward of victory of the gymnic. Thus, also, as 
it is unnatural to labor without receiving benefit from 
labor, men will not labor continuously nor productively, 
unless they receive such benefit. And, hence, the greater 
this benefit, the more active and spontaneous will be their 
exertion. 

In order that every man may enjoy, in the greatest 
degree, the advantages of his labor, it is necessary, pro- 
vided always he do not violate the rights of his neighbor, 
1st. That^ he he allowed to gain all that he can ; and, 2d. 
That having gained all that he can, he he allowed to %ise 
it as he ivill. 

1. It is necessary that every man he allowed to gain all 
that he can ; that is, that the arrangements of society be 
so constructed, that every man be able to render his labor, 
in the highest degree, available to himself. This will 
require, 

1. That property be divided. When property is held 
in common, every individual of the society to which it 



112 FREEDOM OF LABOR AND CAPITAL. 

belongs, has an equal, but an undivided and indetermined, 
right to his portion of the revenue. Hence, every one is 
at liberty to take what he will, and as much as he will, 
and to labor as much or as little as he pleases. . There 
is, therefore, under such an arrangement, no connexion 
between labor and the rewards of labor. There is rather 
a premium for indolence than for industry. In such a 
case, there will be no regular labor, if, indeed, there be 
any labor at all ; and, what is still worse, even the scanty 
and spontaneous productions of the earth will frequently 
be gathered before they are ripe, since every one fears, 
that if he do not seize them now, he will never enjoy 
them at all. The forest of an Indian tribe, is held in 
common, and a few hundred families almost starve, upon 
a territory which, were it divided and tilled, would sup- 
port a million of civilized men. The little that it pro- 
duces to him, is the result of division of property. His 
bow and arrows, his wigwam and his clothing are ac- 
knowledged to be, in the fullest sense, his own. Were 
these to be held, like his land, in common, the whole 
race would very soon perish, from want of the necessaries 
of life. 

On the contrary, as soon as land with all other property 
is divided, a motive exists for regular and voluntary labor, 
inasmuch as the individual knows that he, and not his 
indolent neighbor, will reap the fruit of his toil. Hence- 
forth, he begins to create a regular supply of annual pro- 
duct. With increased skill, this annual product increases, 
and he begins to convert it into fixed capital, a form of 
wealth which could scarcely exist, without division of 
property. Every accession to his fixed capital, renders 
his labor more productive, and, hence, it creates a stronger 
stimulus to increased exertion. With increased exertion, 
his annual capital is increased, and a greater surplus 
remains to be changed into fixed capital. Thus, in- 



DIVISION OF PROPERTY. 113 

creased production, stimulates industry, and increased 
industry results in more abundant production. And thus 
we see, that division of property, or the appropriation to 
each, of his particular portion of that which God has given 
to all, lays at the foundation of all accumulation of wealth, 
and of all progress in civilization. 

Hence, we see the reason why property held in com- 
mon, is so generally prejudicial to the best interests of a 
society. A common, where every one, at will, may pas- 
ture his cattle ; and a forest, from which every inhabitant 
may procure his fuel ; are severally encouragements to 
indolence, and serve to keep a community poor. Thus, 
also, funds left at large for the support of the poor, on 
which every one is supposed to have an equal right to 
draw, have generally been found to foster indolence. 
Poor laws, in so far as they are to be considered a fund 
for this purpose, have the same sort of injurious tendency. 

2. But the division of property would be of no avail, 
unless the right of property were enforced ; that is, unless 
every one be protected in the undisturbed possession of 
whatever he has rightfully acquired. As no one will 
labor, unless he knows that he shall reap the fruit of his 
toil, so no one will take the pains to reap the fruit of his 
toil, unless he also know that he will be able to hold it, 
and appropriate it to the purposes of his own gratification. 
And, hence, we see that human labor is exerted in differ- 
ent countries, very much in proportion as the right of 
property is both understood and enforced. 

Moral Philosophy teaches us that the right of property 
may be violated by the individual or by society. It is 
violated by the individual, by cheating, stealing, robbery, 
and violation of contracts. And we universally see, that 
just as these crimes prevail, production languishes, indus- 

15 



114 THE RIGHT OF PROPERTY. 

try diminishes, and the richest soil fails to support its few 
and impoverished inhabitants. Such was the case in 
Europe, during the feudal oppression. There was no 
encouragement to labor, because no one knew whether 
he, or a baronial tyrant, would reap the fruit of his in- 
dustry. 

Hence, we see the economical importance of all means 
which shall prevent the individual violation of the right 
of property. These means are two. 

1. The first is, the inculcation of those moral and reli- 
gious principles, which teach men to respect the rights of 
others as their own, that is, to obey the law of reciprocity,- 
and which present the strongest conceivable reasons for so 
doing. This is the most certain method of preventing 
the violation of the right of property, inasmuch as it aims 
to eradicate those dispositions of mind, from which all 
violation proceeds. It is also the cheapest, as it aims at 
prevention, which is always more economical than cure. 
It is also necessary : inasmuch as good laws will never 
be enacted, or, if enacted, will never be obeyed, only in 
so far as there exists a moral character in the community 
sufficiently pure to sustain them. In proportion as these 
are efficacious, all other means are needless. Hence, we 
see the reason why moral and religious nations grow 
wealthy so much more rapidly than vicious and irreligious 
nations. The feeling of perfect tranquillity and security, 
which a high social morality diffuses over a whole com- 
munity, is one of the most beneficial, as well as one of 
the strongest stimulants to universal industry. This is 
one of the temporal rewards which God bestows upon 
social virtue. And, inasmuch as no one can enjoy this 
reward, simply by being virtuous himself, but only as his 
fellow citizens also are virtuous, we see the indication in 
our constitution, that it is the duty, as well as the interest 
of every man, to labor to render other men more virtuous. 



THE RIGHT OF PROPERTY. I J 5 

2. But inasmuch as all men are not influenced in their 
conduct by moral and religious principles ; it is necessary 
that aggression be somehow prevented, and violations of 
property, in so far as possible, redressed. Hence, the 
importance of wholesome and equitable laws, of an inde- 
pendent and firm judiciary, and an executive, which shall 
carry the decisions of law faithfully into effect. Hence 
we see, that the expense necessary for the most perfect 
administration of justice, is among the most productive of 
all the expenditures of society. Good law, and the faith- 
ful administration of it, are always the cheapest law, and 
the cheapest administration of it. Hence we see, that 
the interests of man require that law should be invariably 
executed, and that its sovereignty should, under all cir- 
cumstances, be inviolably maintained. 

But the right of property may be violated by society. 
It sometimes happens, that society or government, which is 
its agent, though it may prevent the infliction of wrong by 
individuals upon individuals, is itself by no means averse 
to inflicting wrong or violating the right of individuals. 
This is done, where governments seize upon the property 
of individuals by mere arbitrary act, a form of tyranny, 
with which all the nations of Europe were, of old, too 
well acquainted. It is also done, by unjust legislation ; 
that is, when legislators, how well soever chosen, enact 
unjust laws, by which the property of a part, or of the 
whole, is unjustly taken away, or unjustly subjected to 
oppressive taxation. 

Of all the destructive agencies which can be brought 
to bear upon production, by far the most fatal, is public 
oppression. It drinks up the spirit of a people, by inflict- 
ing wrong through means of an agency which was created 
for the sole purpose of preventing wrong ; and which was 
intended to be the ultimate and faithful refuge of the 



116 THE RIGHT OF PROPERTY. 

friendless. When the antidote to evil, becomes the source 
of evil, what hope for man is left ? When society itself 
sets the example of peculation, what shall prevent the 
individuals of the society from imitating that example ? 
Hence, public injustice is always the prolific parent of 
private violence. The result is, that capital emigrates, 
production ceases, and a nation either sinks down in hope- 
less despondence ,• or else the people, harassed beyond 
endurance, and believing that their condition cannot be 
made worse by any change, rush into all the horrors of 
civil war ; the social elements are dissolved ; the sword 
enters every house ; the holiest ties which bind men 
together are severed ; and no prophet can predict, at the 
beginning, what will be the end. 

Hence we see the importance to the industry of a 
country, of a constitution which guarantees, to the indi- 
vidual, immunity not only from private, but also from 
public oppression. Wherever this immunity is wanting, 
the progress of a nation in wealth, will be slow. It is 
owing rather to the freedom of her institutions and the 
equity of her laws, than to her physical advantages, that 
Great Britain has so far outstripped all other European 
nations in the accumulation of wealth, and in every thing 
that confers social power. It is almost superfluous, how- 
ever, to add, that a free constitution is of no value, unless 
the moral and intellectual character of a people be suffi- 
ciently elevated to avail itself of the advantages which it 
offers. It is merely an ijistmment of good, which will 
accomplish nothing, unless there exist the moral dispo- 
sition to use it aright. 

To sum up Avhat has been said : Labor will be applied 
to capital, in proportion as every man is allowed to gain all 
that he can ; that is, as property is most perfectly divided ; 
and as this division is most strictly enforced ; that is. as 



FREEDOM OF INDUSTRY AND CAPITAL. 117 

the right of property is guarded by the most equitable 
laws ; and as there exist the strongest guarantees that these 
laws will be inviolate, whether they relate to individuals 
or to society. 

II. The second part of the condition mentioned in the 
beginning of this section is, that the individual be allowed 
to use his own as he will. To this, is of course to be 
added the condition, that he use it in such manner, as not 
to interfere with the rights of his neighbor. 

A man's possessions are his talents, faculties, skill, and 
the wealth and reputation which these have enabled him 
to acquire ; in other words, his industry and his capital. 
In order that industry be applied to capital with the 
greatest energy, it is necessary that every man be at 
liberty to use them both as he will ; that is, that both of 
them be free. 

The reason of this is obvious. The aptitudes of men for 
different employments are very dissimilar. The choice of 
every man naturally leads him to that employment for 
which he is best adapted. By allowing every man, there- 
fore, to employ his industry as he chooses, every man will 
be employed about that for which he is best adapted ; and 
hence, the production of all will be greatly increased, be- 
cause we thus avail ourselves of the peculiar productive- 
ness of every individual. Nor is this all. By allowing 
every man to labor as he chooses, we very greatly increase 
the happiness of every individual. And every one knows 
that a man will labor with better success when his labor 
is pleasant, than when it is irksome. 

The case is the same with respect to capital. Every 
man is more interested in his own success, than any other 
man can be interested in it. Hence, every man is likely 



118 FREEDOM OF INDUSTRY AND CAPITAL. 

to ascertain more accurately in what manner he can best 
employ his capital, than any other man can ascertain it 
for him. If every man, therefore, be allowed to invest his 
capital as he will, the whole capital of a country will be 
more profitably invested, than under any other circum- 
stances whatever. And, since, when he is left thus at 
liberty, there will be the greatest gain to the capitalist, 
there will also be the greatest stimulus to his industry; 
for the stimulus to labor is always in proportion to the 
rewards of labor. And, on the contrary, in just so far as, 
by any means, this productiveness is dimniished, the 
stimulus to labor is also diminished with it. 

It may be said that men, if left to themselves, will be 
liable to invest their capital unwisely. Granted. Man 
is not omniscient, and therefore this liability cannot be 
avoided. The question, therefore, is, how shall it be 
rendered as small as possible. Will a man, who reaps the 
benefit of success and suffers the evils of failure, be less 
likely to judge correctly, than he whose faculties are 
quickened by no such responsibility ? Nor is this all. 
Not only are legislators, who generally assume the labor 
of directing the manner in which labor or capital shall be 
employed, in no manner peculiarly qualified for this task; 
they are, in many respects, peculiarly disqualified for it. 
The individual is liable to no peculiar biases, in making 
up his mind in respect to the profitableness of an invest- 
ment. If he err, it is because the indications deceive 
him. The legislator, besides being liable to err by mis- 
taking the indications, is liable to be misled by party 
zeal, by political intrigue, and by sectional prejudice. 
What individual would succeed in his business, if he 
allowed himself to be influenced in the manner of con- 
ducting it, by such considerations ? And must not like 
causes always produce like results ? 



FREEDOM OF INDUSTRY AND CAPITAL. 110 

Besides, every man feels, instinctively, that he has a 
right 10 nse his capital and his industry as he pleases^ 
provided he interfere not with the rights of another ; and 
that, to restrict him in this nse, is injustice. We have 
before said, that nothing paralyzes industry like oppres- 
sion, and it is as true in this case, as in any other. If 
this sort of interference be violent or frequently repeated, 
capital and labor, whose motto like that of Dr. Franklin 
is, " Where liberty dwells, there is my country," will em- 
igrate to some more congenial social atmosphere. And if 
the interference be not so intolerable as to produce these 
results, yet, in just so far as it has any effect, it is all of 
this kind, and, by its whole operation, must diminish the 
incitements to industry. 

And, on the contrary, just as every individual is free to 
employ his industry and capital as he chooses, and thus 
both to receive a larger compensation for his labor, and 
also to labor more happily, will be the inducements to 
industry and to the investment of capital. 

If this be so, we see the impolicy of several forms of 
legislative interference, in relation to this subject. 

1. We see what must be the effect of monopolies. A 
monopoly is an exclusive right granted to a man, or to 
a company of men, to employ their labor or capital in 
some particular manner. Such was the exclusive right 
granted to the East India Company, to import into the 
ports of Great Britain, or her territories, the productions 
of all countries east of the Cape of Good Hope. Such 
were the privileges granted formerly by Spain, to particu- 
lar individuals or companies, of importing foreign com- 
modities into the ports of her colonies in South America. 
The result of this exclusion was to prevent all other per- 
sons, except those thus favored, from the right of investing 



120 FREEDOM OF INDUSTRY AND CAPITAL. 

their capital in this manner ; and hence, to reduce the 
vahie of that capital, by precisely the amount of this 
effect. The tendency of this system may be easily seen ; 
for, were all the modes of employing capital thus restricted, 
the additional capital that might be accumulated, would 
be utterly worthless. Nor is this all. Those who hold 
this exclusive privilege, being liable to no competition, 
may charge for their commodities whatever they choose. 
Here is, therefore, a two-fold injustice ; first, the means 
of the consumer are diminished ; and secondly, the price 
which he must pay, is enhanced at the mere will of his 
oppressor. 

These remarks, of course, do not apply to patent and 
copy right, which are a species of monopoly. They 
however differ from that which we have described, in 
this, that they leave the consumer at option to use the 
invention or not, as he chooses. If a man invent a valu- 
able machine, he is under no obligation to make it known 
to others, but has a right to use it, if he choose, for his 
own exclusive benefit. By the law of patent right, he 
and the community enter into a mutually advantageous 
agreement. He agrees to surrender all exclusive claim to 
it, on condition of having the exclusive right to vend it 
for a certain time. If, at the price he asks for it, it is an 
advantage to the rest of society, they will purchase it, and 
are, by this advantage, the gainers. If, at this price, it is 
no advantage, they do not use it, and they are in no 
respect the losers. In both cases, after the period of 
patent right has expired, they have the use of the improve- 
ment for nothing. 

2. Hence we see the impolicy of obliging an indi- 
vidual, or a class of individuals, to engage in any labor, or 
to make any investment, contrary to their wishes. Thus, 
we are told that during the French revolution, some indi- 



f'REEDOM Or^ INDUSTRY. ]2t 

vicluais were punished, capitally, for raising cattle, instead 
of wheat. Men may call this legislation^ but the true 
name for it is robbery. To oblige a man to raise a crop 
worth fifteen dollars per acre, Avhen he would otherwise 
have raised one worth twenty dollars per acre, is just the 
same thing as to let him do as he pleases, and then rob 
him of five dollars an acre afterwards. The wrong is the 
more intense, in the former case, inasmuch as it is done 
under the semblance of justice, and by men who claim, 
as the robber does not, that they have the right to do it. 
Such legislation as this wiU, in any country, soon pro- 
duce a famine. 

3. Another form of injury under this class, is seen in 
the restrictions upon industry, formerly, if not now, exist- 
ing in many of the countries of Europe. By these regu- 
lations, artisans were prohibited the exercise of more than 
one trade ; they were not allowed to exercise that trade, 
unless they had served a prescribed apprenticeship ; nor, 
unless they joined a particular trade-society, and bound 
themselves to comply with certain restrictions, as, for 
instance, to sell at particular prices, and never to employ 
beyond a certain number of apprentices. The result of all 
this oppression is most iniquitous. It reduces the value of 
skill and industry, the sole estate of the laborer ; and places 
him in the power of those, whose interest it is to reduce 
the supply as much as possible, in order to secure to them- 
selves the most exorbitant profit. In such cases, a large 
amount of available industry must be kept out of employ- 
ment ; and, of course, production is, to this whole amount, 
diminished. 

4. The same eftect is partially produced by any mode 
of legislation, by which, in consequence of favor shown 
to one party, which of course another party must pay for, 
men are obliged to exchange an employment which they 

16 



122 FREEDOM OF INDUSTRY. 

prefer, and for which they have pecuhar facihties, for 
another which they do not prefer, and for which they 
have not the same facihties. The manner in which this 
would lessen the stimulus to industry, has already been 
illustrated. Thus, should our government believe that 
commerce was more valuable to this country than manu- 
factures, and therefore not only leave every one at liberty 
to engage in commerce, but, also lay a tax upon all 
American manufactures, in order to increase the amount 
of foreign transportation, and also remove all duties from 
imports, this would drive manufacturers out of business, 
and oblige them to become merchants and agriculturists. 
I think that every one must see that this would diminish 
the stimulus to industry throughout the whole country. 
Men would not voluntarily engage in manufactures in pref- 
erence to commerce, unless they found manufactures to be 
the more profitable ; and to oblige them to exchange the 
one for the other, is, therefore, to oblige them to leave a 
more productive for a less productive mode of employ- 
ment. By all this difference is the country the loser, 
and the incitement to industry is diminished. 

5, Hence, we also see the impolicy of laws regulating 
consumption. Such are sumptuary laws ; or those which 
limit the degree of expensiveness in our dress, clothing 
or equipage. These were formerly common in Europe. 
Such, also, are laws which forbid or restrict the expendi- 
ture of money for the purposes of benevolence, religion, 
or any thing of this sort. Every one must see that one 
of the incitements to industry, is the pleasure which men 
expect to derive from expenditure. Now, if this expendi- 
ture be innocent, it matters not what sort of expenditure 
it is. Society has nothing to do with it ; and it can in 
no manner interfere with it, without doing injustice, and 
taking away one of the strongest inducements to industry. 



PREVENTION OF IDLENESS. 123 



SECTION III. 

LABOR WILL BE APPLIED TO CAPITAL, IN PROPORTION AS 

EVERY MAN SUFFERS THE INCONVENIENCES 

OF IDLENESS. 

If God have made labor necessary to our well-being, 
in our present state ; if he have set before us sufficient 
rcAvards to stimulate us to labor ; and, if he have attached 
to idleness correspondent punishments, it is manifest that 
the intention of this constitution will not be accomplished, 
unless both of these classes of motives are allowed to ope- 
rate upon man. We shall, therefore, co-operate with Him, 
in just so far as we allow his designs to take effect in the 
manner he intended. " We taught you," saith the apostle 
Paul, " that if a man will not work, neither shall he eat." 

Now this result will be accomplished, 

1. By the division of property. When property is per- 
fectly divided, and every thing is owned by some one, and 
every one knows what is his own, nothing is left in com- 
mon. Of course, no man can then obtain any thing more 
than he has, unless he obtain it by labor. And as every 
man has faculties capable of labor, and as these are exclu- 
sively his own : and as every one who possesses capital 
desires to employ labor with which to combine it, every 
man who possesses his natural faculties, has the means by 
which he may obtain something for his subsistence. The 
division of property is thus favorable to the laborer ; inas- 
much as, in consequence of it, every one needs his labor, 
and also has something to give him in exchange for it. 



124 PREVENTION OF IDLENESS. 

3. But, suppose property to be universally divided. A 
man may possess himself, either dishonestly or by begging, 
of the property for which he has not labored. The dis- 
honest acquisition of property, as by cheatirig, stealing, or 
robbery, will be prevented by the strict and impartial 
administration of just and equitable laws. , Hence, we 
see that the benefit of such laws is two fold. They 
encourage industry, first, by securing to the industrious 
the righteous reward of their labor ; and secondly, by in- 
flicting upon the indolent the just punishment of their 
idleness ; or rather, by leaving them to the consequences 
which God has attached to their conduct. Being thus 
thrown upon their own resources, they must obey the law 
of their nature, and labor, or else suff"er the penalty and 
starve. 

If any man complain that this is a hardship, he must 
mean that this hardship has reference to our relations 
either to man, or to God. So far as our relations to man 
are concerned, there can certainly be no hardship, for every 
thing that we see is the result of labor, and is either the 
result of the labor of him that holds it, or of him who 
voluntarily parted with it for an equivalent in labor. 
Now, as every thing we see is the result of labor, the 
question is, who shall enjoy this result of labor, he who 
has labored, or he who has not. If it be a hardship for a 
man not to enjoy that for which he has not labored ; it 
would certainly be a much greater hardship for a man not 
to enjoy that, for which he has labored. So that, the hard- 
ship would be greater if the system Avere arranged to suit 
the complainant, than it is now, under the system of which 
he complains. 

If the hardship turn upon our relations to God ; that is, 
if a man complain because God made him to labor : it is 
a difficulty which the complainant must settle with his 



POOR LAWS. 125 

Maker, We have nothing to do with it. But since God 
has ordained it, we cannot help it, and an indolent man 
has no just cause of grief with his fellow men, if they see 
fit to act accordnig to it. 

II. But secondly : Men may be relieved from the neces- 
sity of labor, by charity. It will be understood that I here 
speak of men as poor from indolence, and not by visitation 
of God. I do not here refer to the sick, the infirm, the 
aged, the helpless, the widow, the fatherless, and the 
orphan. When God has seen fit to take away the power 
to labor, he then calls upon us to bestow liberally, and he 
always teaches us, that this mode of expenditure of our 
property, is more pleasing to him than any other. With 
this mode of charity I have now nothing to do. I speak 
only of provisions for the support of the poor, simply 
because he is poor ; and of provision to supply his wants, 
without requiring the previous exertion of his labor. Of 
this kind are poor laws, as they are established in Eng- 
land, and in some parts of our own country ; and perma- 
nent endowments left to particular corporations for the 
maintenance of the simply indigent. Now, such pro- 
visions we suppose to be injurious, for several reasons. 

1. They are at variance with the fundamental law of 
government, that he who is able to labor, shall enjoy only 
that for which he has labored. If such be the law of God 
for us all, it is best for all, that all should be subjected to 
it. If labor be a curse, it is unjust that one part, and that, 
the industrious part, should suffer it all. If, as is the fact, 
it be a blessing, there is no reason why all should not 
equally enjoy its advantages. 

2. They remove from men the fear of want, one of the 
most natural and universal stimulants to labor. Hence, in 
just so far as this stimulus is removed, there will be in a 



126 POOR LAWS. 

given community less labor done ; that is, less production 
created. 

3. By teaching a man to depend upon others, rather 
than upon himself, they destroy the healthful feeling of 
independence. When this has once been impaired, and 
the confidence of man in the connexion between labor 
and reward is destroyed, he becomes a pauper for life. It 
is in evidence, before the committee of the British House 
of Commons, that, after a family has once applied for 
assistance from the parish, it rarely ceases to apply regu- 
larly, and, most frequently, in progress of time, for a larger 
and larger measure of assistance. 

4. Hence, such a system must tend greatly to increase 
the number of paupers. It is a discouragement to indus- 
try, and a bounty upon indolence. With what spirit will 
a poor man labor, and retrench to the utmost his expenses, 
when he knows that he shall be taxed to support his next 
door neighbor, who is as able to work as himself ; but who 
is relieved from the necessity of a portion of labor, merely 
by applying to the overseer of the poor for aid. 

5. They are, in principle, destructive to the right of 
property, because they must proceed ujdou the concession, 
that the rich are under obligation to support the poor. If 
this be so ; if he who labors be under obligation to support 
him that labors not ; then the division of property and the 
right of property are at an end : for, he who labors has no 
better right to the result of his labor, than any one else. 

6. Hence, they tend to insubordination. For, if the 
rich are under obligation to support the poor, why not to 
support them better ; nay, why not to support them as 
well as themselves. Hence, the more provision there is 
of this kind, the greater will be the liability to collision 
between the two classes. 



POOR LAWS. 127 

If this be so, we see, that in order to accomplish the 
designs of our Creator in this respect, and thus present 
the strongest inducement to industry, 

1. Property should be universally appropriated, so that 
nothing is left in common. 

2. The right of property should be perfectly protected,, 
both against individual and social spoliation. 

3. There should be no common funds for the support 
of those who are not willing to labor. 

4. That if a man be reduced, by indolence or prodigality, 
to such extreme penury that he is in danger of perishing, 
he be relieved, through the medium of labor ; that is, that 
he be furnished with work, and be remunerated with the 
proceeds. 

5. That those who are enabled only in part to earn 
their subsistence, be provided for, to the amount of that 
deficiency, only. 

And hence, that all our provisions for the relief of the 
poor, be so devised as not to interfere with this law of our 
nature. By so directing our benevolent energies, the poor 
are better provided for ; they are happier themselves ; and 
a great and constantly increasing burden is removed from 
the community. It has been found that alms-houses, 
conducted on this plan, will support themselves ; and 
sometimes, even yield a small surplus revenue. This 
revenue, however, should always be given to the paupers, 
and should never be received by the public. The princi- 
ple should be carried out, that the laborer is to enjoy the 
results of his industry. 



128 RATIO OF CAPITAL AND LABOR. 

For the same reason, penitentiaries and State prisons, 
should always be places of assiduous and productive labor. 
Idleness is a most prolific parent of crime. If the vicious 
could be accustomed to labor, one half of their reformation 
would be effected. Besides, by this means, a great dimi- 
nution would be effected in the expense to the community. 
There can be no reason why a hundred able-bodied men, 
and such are generally the tenants of our prisons, should 
not both support themselves, and pay for the superin- 
tendence necessary to their labor. In a well-regulated 
prison, they will always do this. There must always be 
something faulty in the arrangements of such an institu- 
tion, where this is not the result. 

And thus, where a society is so organized, that every 
man is left to suffer the results of idleness ; that is, where 
labor is made necessary to the acquisition of every thing 
desirable, and where the results of that labor are most per- 
fectly secured to the laborer, there will exist the greatest 
stimulus to labor, and, of course, production will be most 
rapidly augmented. 



SECTION IV. 

THE OREATEK THE RATIO OF CAPITAL TO LABOR, THE 
GREATER WILL BE THE STIMULUS TO LABOR. 

The principle to be considered in this section may be 
thus illustrated. Capital is useless ; that is, will yield no 
revenue, unless it be united with labor. A farm will 
yield nothing, unless it be tilled, and the grain be bar-- 



RATIO OF CAPITAL TO LABOR. 129 

X'ested ; cotton wool, and a manufactory, will produce 
nothing, unless there be workmen to labor in it. Hence, 
every man who holds capital, is desirous of uniting it with 
industry, that he may share, with the laborers, the profits 
of the resulting product. On the contrary, he who has 
industry, is desirous of uniting it with capital, because, 
unless he can so unite it, it will yield nothing in return. 
A man can earn nothing by spending his whole time in 
beating the air. Hence, when the number of laborers is 
great ; that is, where labor is abundant, and the amount 
of capital small, there will be a competition of laborers for 
work, and the price of labor will fall ; that is, the laborer 
will receive a less compensation for his work. On the 
contrary, when the number of laborers is small, and the 
amount of capital great, there will be a competition among 
capitalists for labor ; that is, the price of labor will rise ; 
that is, the laborer will receive a greater compensation for 
his work. Thus, we see, the greater the amount of capi- 
tal, in proportion to the number of laborers, the greater will 
be the rate of wages, and, of course, the stronger the stimu- 
lus to industry. 

It deserves, however, to be remarked, that this principle 
is liable to some important modifications. Thus, it is prac- 
tically true, only in so far as men continue to be operated 
upon by the hope of reward. When this ceases to operate, 
and wages are so low as to render the utmost amount of 
labor necessary to avoid starvation, they will work more 
assiduously, the lower the wages ; that is, the nearer they 
are to actual starvation. But, to this, there is also a limit. 
For men cannot long endure so great toil, under the de- 
pressing influences of despair. Many very soon die, and 
thus, a diminished population again raises the price of 
labor. Another common result of such a condition of 
laborers, is domestic insurrection. Men who have long 
stood on the borders of starvation, become desperate* 

17 



130 RATIO OF CAPITAL TO LABOR. 

They know, that by no change could their condition bo 
made \yorse ; hence, cupidi rerum novaru^n, they unite 
under any agitator who promises them bread ; the whole 
fabric of society is prostrated ; and civil war and anarchy 
succeed. 

Another modification of this principle, is the following : 
I have said above, that the stimulus to labor is in propor- 
tion to the wages of labor. This will be true, only of 
those cases where the facilities of gratifying desire are 
equal. Although wages be high, yet if only few objects 
of desire can be procured in exchange for them, there 
will be wanting one important element in stimulating the 
human being to labor. Hence, the stimulus to labor will 
be the most effective, when the wages are highest, and 
when, by means of wages, the greatest number of desires 
can be gratified. 

Thus, in a newly settled country of great fertility, 
wages are high, because a vast amount of land is open for 
cultivation, and a proprietor can afford to give a high price 
for labor. Still, industry is not active in proportion to the 
rate of wages, because, the desires which can be gratified 
in a new country are few, and a man can procure all that 
is procurable with a less amount of labor than he is able 
to exert. Hence, the reason why men labor so intensely 
in prosperous seasons, in large cities. The remuneration 
at such times is high, and the desires which wealth can 
gratify are innumerable. A merchant in New York, during 
the season of business, when profits are high, will cheer- 
fully impose upon himself labor, which he knows will, in 
all probability, ruin his constitution ; labor, which, he 
would not, on any account, impose upon a slave. 

Hence, we see that the accumulation of capital is more 
for the advantage of the laborer than of the capitalist. 



RATIO OF CAPITAL TO LABOR. 131 

The greater the ratio of capital to labor, the greater will 
be the share of the product that falls to the laborer. The 
greater the ratio of labor to capital, the greater will be the 
share of the product that falls to the capitalist. Hence, 
the laboring classes are really more interested in increasing 
the capital of a country, than the wealthy classes. Hence, 
we see, that when one class of the community repines at 
the prosperity of another class, they repine against their 
own mercies, and the means of increasing their own rate 
of compensation. 

It is, however, evident, that the accumulation of capi- 
tal, in any nation, does not depend simply upon its annual 
production, but upon the proportion that its annual pro- 
duction bears to its annual expenditure. A country that 
annually expends all its production, let it produce ever so 
much, will never increase its capital. A country that 
produces ever so little, if it annually expend somewhat 
less than its revenue, will be accumulating something ; 
and must, in progress of time, become richer than its more 
highly favored neighbor. This exj iains the fact, that the 
countries blessed with the richest soils, and the greatest 
natural advantages, have not generally become the richest 
nations. The result has, within moderate limits, been 
almost the reverse. 

Hence, we see, that every mode of unnecessary expen- 
diture, whether individual or national, by diminishing the 
annual accumulation of capital, tends directly to lower 
the rate of wages, and thus injure the condition of the 
laboring classes. The millions which are wasted and 
destroyed by intemperance, if saved, would add to the 
capital of a country, and thus increase the demand for 
labor. All unnecessary expenditure for the maintenance 
of civil government, has, of course, the same tendency. 
Hence arises, also, one of the most afflicting consequences 



132 INTELLECTUAL IMPROVEMENT. 

of war. Had the almost incalculable sums which Great 
Britain has expended in wars, for the last hundred years, 
been added to her operative capital, and, but for these 
wars, it would have been so added, all her inhabitants 
would have found, at all times, abundant employment, 
and, at a rate of wages, which would, by this time, have 
banished almost the recollection of poverty from her 
shores. 



SECTION V. 

INDUSTRY WILL BE APPLIED TO CAPITAL, IN PROPORTION TO 
THE INTELLECTUAL IMPROVEMENT OF A PEOPLE. 

Intellectual cultivation tends to increase the industry of 
a people, in two ways. 1st. By exciting a people to 
exertion ; and, 2d. By directing that exertion. 

1. Intellectual cultivation excites a people to exertion. 
Ignorant men are indolent, because they know not the 
results that may be accomplished, nor the benefits that 
may be secured by industry. This is one of the most 
common causes of the great indolence of savage nations. 
An Indian, who knows of no condition better than his 
own, of no covering better than a skin, of no habitation 
better than his wigwam, and of no weapon better than 
his bow and arrow, has no motive to industry, beyond 
what may be adequate to procure these simple necessa- 
ries. Let him know that, by additional effort, he can 
provide himself with a blanket, and by a still additional 



INTELLECTUAL IMPROVEMENT. 133 

effort, that he can exchange his bow and arrow for a rifle, 
and his wigwam for a comfortable house, and you pre- 
sent motives to additional labor. His industry will thus 
expand with the occasion. The case is the same with a 
nation, at a more advanced period of its history. Hence, 
the impulse which is always given to industry, by any 
important improvement in the intellectual character of a 
people. It was a knowledge of the conveniences and 
luxuries of the East, which the crusaders brought back 
to western Europe, that was the precursor and the cause 
of that dawning of improvement which succeeded the 
night of the dark ages. 

2. Intellectual cultivation directs to a p^ojitahle end, 
the industi'y which it has previously excited. 

Agriculture will be successfully prosecuted, only in 
proportion as men are acquainted with the best modes 
and seasons of culture, the laws of vegetable and animal 
physiology, and the probable existence of that demand 
which it will be most profitable to supply. 

Manufacturing labor will be successful, in proportion 
as the manufacturer is able, by his knowledge, to avail 
himself of the improvements of other countries, to under- 
stand the laws of nature, and invent means of applying 
them to his own advantage, and as he is able, by his 
intelligence, to modify his occupation in any manner that 
may be for his interest. 

The Mercha7it will succeed, in proportion as he is able 
to select the most profitable places and times for exchange, 
to foresee the probable changes of the market, and to avail 
himself of the fluctuations of capital which are always 
taking place, in various parts of the civilized world. 

ilnd, in general, it is evident that, with a given amount 



134 INTELLECTUAL IMPROVEMENT. 

of labor and of capital, production will be exactly in pro- 
portion to the knowledge which the operator has of the 
laws which govern that department of production in which 
he labors, and to the degree in which his labor conforms 
to his knowledge. If, then, labor will be in proportion 
to the benefits which it confers ; and if, by knowledge, 
these benefits are increased, we see how manifestly labor 
must be stimulated by intellectual cultivation. Thus we 
see how it is, that an intelligent people is always industri- 
ous, and an ignorant people always indolent. Hence, one 
of the surest means of banishing indolence, is to banish 
ignorance from a country. 

But, it is evident, that improvement in knowledge, in 
order to be in any signal degree beneficial, must be uni- 
versal. A single individual can derive but little advan- 
tage from his knowledge and industry, if he be surrounded 
by a community both ignorant and indolent. Just so far 
as they improve their condition, and become useful to 
themselves, they become useful to him ; and both parties 
thus become useful to each other. This is specially the 
case, where a government is, in its character, popular ; 
that is, where laws emanate from the more numerous 
classes. In such a case, not only is an intelligent man 
not benefitted, but he is positively injured, by the igno- 
rance and indolence of his neighbors. Hence, the reason 
why every man has a personal interest in the intellectual 
improvement of every one of his fellow citizens ; and why 
the education of the whole population should be the care 
of the government ; that is, of the whole country. 

The efforts of a government may be usefully directed, 
in this respect, to two objects. 1st. The increase ; and, 
2d. The dissemination of knowledge. 

First. The increase of knowledge. This may be pro- 
moted in several ways. 



INTELLECTUAL IMPROVEMENT. '135 

1. By the establishment of colleges, universities, and 
other seminaries of learning. These, I suppose, should 
be furnished by the public, with libraries, apparatus, and 
all the means for instruction, investigation and discovery. 
They should be so governed, and the remuneration so 
adjusted, that teachers should be placed under the strong- 
est stimulus to labor for the promotion of science, and to 
communicate, most successfully, knowledge to their pupils. 
Colleges and universities should, at all times, be places of 
strenuous efibrt, and vigorous mental discipline, on the part 
of both instructors and pupils. As soon as they become 
the places of literary leisure, and intellectual indolence, 
they are not only useless, but hurtful ; inasmuch as they 
retard, rather than advance, the progress of science. 

For this reason, I doubt whether endowments, for the 
support of professorships, are useful ; at least, so far as 
they tend to render a teacher's support, independent of 
his own exertions. For the same reason, a teacher should 
not be remunerated by a fixed salary, but by the sale of 
tickets of admission to his lectures, or by a salary, varying 
with his ability and success. Large foundations for the 
support of students in colleges, if under the control of the 
college itself, so far as they render the number of students 
in no way dependent upon the ability and faithfulness of 
the instructor, will have a tendency to remove from him 
one of the most valuable stimulants to industry. 

2. By rewarding those who have been successful in the 
advancement of science. 

1. This may be done, first, Directly^ as by bestow- 
ing premiums, rewards, grants of money, &c., to those 
who have made discoveries of pre-eminent utility. This 
is frequently done by the British government ; and I see 
no reason why it is not done wisely. In this country, 



136 INTELLECTUAL IMPROVEMENT. 

however, it is, I believe, never practised. The only 
rewards which we ever confer, are for military or naval 
service. The propriety of those, I by no means, in this 
place, dispute ; yet, I think it would be difficult to show, 
that warriors are the only benefactors of mankind, or, that 
Whitney or Fulton did not deserve as well of their country, 
for the invention of the cotton gin and the application of 
steam to navigation, as they would have done, had they 
captured a fleet on the ocean, or routed a tribe of Indians 
in the forest. 

2. Indirectly, by granting to those who labor in science 
or invention, the right to derive advantage from their dis- 
coveries or inventions. This is done by laws of copy and 
patent right. The justice of this provision we have else- 
where shown. We here see the manner, in which, by 
stimulating intellectual labor, by hope of reward, it tends 
to increase knowledge, and hence, facilitate production. 
We hence see the reason, why such laws should be rigidly 
enforced, and why a violation of them is prejudicial to the 
best interests of society. 

Secondly. A government may improve the intellectual 
character of a people, by the dissemination of knowledge. 
This will be done, so far as provision is made for the uni- 
versal instruction of a people in the elements of a com- 
mon education. The interest of every man demands 
that all his fellow citizens should be able to read and 
write, to keep accounts, to understand geography ; and 
thus possess the means of self-improvement, to whatever 
degree they may be disposed to carry it. 

The effect of such a diffusion of knowledge, has already 
been illustrated at sufficient length. It will be necessary 
here only to allude to the means, by which this result 
may be best attained. 



INTELLECTUAL IMPROVEMENT. 137 

1. As a stimulus to intellectual improvement, probably, 
the right of suffrage should be restricted to those who are 
able to read and write. 

2. Provision should be made, in every neighborhood, 
for the education of all children under a certain age. 

3. The expenses of this provision may be borne, partly, 
by a general fund. This fund should, however, never 
defray more than a portion of the expense ; for no man 
values, highly, what he gets for nothing. If a fund be 
raised for this purpose, great care must be taken that it 
be not abused. 

4. Without a fund, the same result will probably be 
better accomplished by obliging every district containing 
a given number of inhabitants, to provide itself with a 
school, on penalty of a fine to be paid to the school districts 
in its neighborhood, for the purposes of instruction. 

5 To complete this arrangement, it would, probably, be 
necessary that seminaries should be provided for the pur- 
pose of educating teachers for the primary schools. This 
would ensure a supply of instructors, of assured qualifi- 
cations, without which, such a system could not go into 
successful operation. 

And now, to sum up what has been said : It will be 
seen that the inducements to labor, and, hence, of course, 
the wealth and means of happiness, in any given country, 
must depend, principally, upon two conditions : 1st. The 
degree of its intelligence ; and, 2d. The purity of its moral 
character. 

1. On its intelligence will depend its knowledge of its 
own advantages, of the laws of nature, and of the means 

18 



138 BENEFITS OF RELIGION. 

by which it may avail itself of those laws, for the promo- 
tion of its own happiness. A nation without knowledge, 
like a blind man in the garden of Eden, might be sur- 
rounded with every thing lovely to the eye or delightful 
to the taste, without ever being able to ascertain, either 
where a single object of desire was to be found, or how 
the possession of it might be secured. 

2. On the moral character of a nation depends the jus- 
tice of its laws, its respect for individual right, security of 
property, individual and social virtue, together with the 
industry and frugality which are their invariable attend- 
ants. 

Of these two, the latter is the more important to national 
prosperity. For, where virtue, frugality, and respect for 
right exist, riches will, by natural consequence, accu- 
mulate ; and intellectual cultivation will, of necessity, 
succeed. But, intellectual cultivation may easily exist, 
without the existence of virtue or love of right. In this 
case, its only effect is, to stimulate desire, and this, unre- 
strained by the love of right, must eventually overturn 
the. social fabric which it at first erected. Hence, we 
see that the surest means of promoting the welfare of a 
country is, to cultivate its intellectual, but especially its 
moral character. Until this have been done, no perma- 
nent foundation for a nation's prosperity has yet been 
laid. And, if any one will take the pains to examine, he 
will find, that, other things being equal, the wealth, and 
happiness, and power of every nation, are in exact propor- 
tion to its intellectual and moral character. 

And, here, it may not be amiss to add, that all true 
benevolence may be defended, no less upon principles of 
political economy, than of philanthropy. The circula- 
tion of the scriptures, the inculcation of moral and 



BENEFITS OF RELIGION. 139 

religious truth upon the mind of man, by means of 
Sabbath schools, and the preaching of the gospel, are of 
the very greatest importance to the productive energies 
of a country. The argument is very short, but it seems 
very conclusive. No nation can rapidly accumulate or 
long enjoy the means of happiness, except as it is per- 
vaded by individual and social love of right ; but indi- 
vidual and social love of right will never prevail, without 
the practical influence of the motives and sanctions of 
religion ; and these motives and sanctions will never 
influence men, unless they are, by human efl"ort, brought 
to bear upon the conscience. 

The same principles will defend, upon economical 
grounds, the efl'orts of benevolence on behalf of foreign 
nations. Intelligence, virtue, and equitable laws, will 
have the same efi'ect upon other men, that they have upon 
us. They will render men industrious, frugal, and con- 
sequently rich, and raise them from a savage to a civilized 
state. Just in proportion as a nation is thus transformed, 
are its products increased ; the riches of the whole world 
are augmented; the portion of wealth which falls to the 
share of each man is rendered greater ; and the ratio of 
capital to labor is higher. Just as a nation becomes intel- 
ligent and rich, its wants are multiplied, and the means 
for supplying them are provided. Hence, it becomes a 
better customer to other nations ; it gives an additional 
impulse to their industry ; and it repays them for their 
products, with whatever God has bestowed upon it, which 
will add to the happiness of others. Can any one doubt 
that Great Britain and France reap incomparably greater 
advantages from each other, in their present condition of 
advanced civilization, than either of them would, if the 
other were in the condition in which it was found by 
Julius Cgesar ? What demand would Great Britain make 
upon the productions of France, if she were, at this mo- 



140 PROTECTING DUTIES. 

ment, inhabited by half naked savages ? Or again : How- 
much greater benefits does North America confer upon the 
world, than it would if it were peopled by its aboriginal in- 
habitants ? How great a stimulus would be given to the 
industry of the world, at this time ; and how greatly 
would the comforts and luxuries of men be increased, if 
Africa were peopled by civilized and christianized men ? 
Now, if these things be so ; and that they are so, I see 
not that any one can dispute ; it seems to me, that civil- 
ized nations could in no way so successfully promote 
their own interests, as by the universal dissemination 
of the principles of religion, and the means of education 
and religion. 



SECTION VI. 

ON THE EFFECTS OF DIRECT LEGISLATION, AS A MEANS OF 
INCREASING PRODUCTION. 

I have thus far said nothing upon the effect of legisla- 
tive enactments, by means of bounties and protecting 
duties, as a means of increasing production. The reason 
is, that I have not yet been able to discover in what man- 
ner they produce this effect. Nevertheless, since many 
persons suppose them to be of great importance, it might 
seem that a discussion of this subject was incomplete, if 
they were passed over in silence. 1 shall devote this 
section to a consideration of their effects. 

Of distrimmatin.g, or, as they arc frequently called, 
protectitig duties. 



PROTECTING DUTIES. 141 

1. Duties of this sort are to be considered apart from 
duties levied for the support of government, because they 
are either not necessary for this purpose, or else they are 
levied for a different object. Thus, if five per cent, on an 
import be necessary to the support of government, and ten 
per cent, be levied, in order to favor, or, as it is said, to 
protect one branch of industry, the additional five per 
cent, is levied for a distinct object, aside from that of the 
support of government. It is only this latter part of the 
duty which we propose to consider ; that is, so much of the 
duty as is levied for the purpose of favoring one particular 
product. 

2. Now, if such a duty have any effect upon the produc- 
tiveness of a nation, it must be in one of these ways. It 
must either first increase the capital of a country ; or, 
secondly, increase its number of laborers ; or, third, cre- 
ate a greater stimulus to labor. I think it evident, from 
what has already been shown, that every condition which 
affects production, must exert its influence in one of these 
three methods. 

3. I think it evident, that legislation of this sort cannot 
increase the capital of a country. The capital of a country, 
at any moment, is its present amount of annual and fixed 
capital. Now, a law cannot create capital ; since, if it 
could, there would be no necessity for any other labor 
than that of legislation ; and, in order to grow rich, a 
nation would have nothing to do but meet in public 
assembly, and spend its whole time in making and hear- 
ing speeches, and enacting laws. I believe, however, 
that this mode of growing rich, has never been found 
remarkably successful. 

If it be said that, in this manner we shall attract foreign 
capital to our own country, I answer : this depends not 



142 PROTECTING DUTIES. 

upon legislation, but upon the rate of interest, and the 
security of property. If these conditions be more favor- 
able here than in another country, capital will flow hither. 
If they be more favorable in another country than here, 
it will flow thither. The system of Great Britain has 
been exclusive, but capital does not go from this country 
to be invested there. 

4. Legislation of this kind cannot increase the actual 
number of laborei^s. The number of laborers is as the 
number of inhabitants. liCgislation has never been sup- 
posed to have any power to create men. It is true, popu- 
lation is found always to increase with the increase of the 
means of living ; that is, with the increase of the produc- 
tiveness of labor. Population will increase or diminish, 
just in proportion as a laborer is able to procure more or 
less for the product of a day's labor ; that is, as every 
thing is cheap or dear. Whether the tendency of duties 
is to render productions cheap, remains to be considered. 
It must, however, be evident to all, that laws do not cre- 
ate human beings; of course, they add nothing to the 
number of laborers, that is, of human beings in a country. 

It may be said, we may thus induce laborers to come from 
other countries. To this it may be answered; this will 
depend upon the wages of labor. If laborers be better paid 
here than elsewhere, they will come here, and not other- 
wise. Bnt it may be said, that we shall thus induce more 
of them to come. But then, just as we increase the pro- 
portion of labor to capital, we diminish the wages of labor. 
In what manner we encourage domestic industry, by 
inviting foreigners to come and underbid our own citi- 
zens, I believe has not yet been explained. Besides, 
what is called protection changes only the mode of labor; 
that is, it takes men from one mode of labor, to employ them 
upon another. Suppose, then, that it attracts foreign labor- 



PROTECTING DUTIES. 143 

ers to one branch of industry ; it deters those in another 
branch of industry from imigrating. If, for instance, 
manufactures are protected, this will tend to encourage 
manufacturers to imigrate ; but it Avill, in a correspond- 
ent proportion, discourage agriculturists. 

5. If, then, discriminating duties produce any effect 
upon production, it must be by stimulating industry; that 
is, while the amount of capital and the number of laborers 
remain the same, by stimulating men to labor more, and 
thus to create a greater amount of production than they 
would under other circumstances. This, I believe, is 
supposed to be the way in which the system produces its 
effect. This is the point of view in which we shall now 
proceed to consider it. 

The manner in which this is done, is the following : 
Suppose a country to be under a free system, and that 
every one is devoting himself to agriculture, commerce, 
or manufactures, as he finds either the most for his inter- 
est ; under these circumstances, there will be a certain ave- 
erage of productiveness, both of labor and of capital. 
Woollen cloth can be procured by exchange, for five dol- 
lars a yard ; but it cannot, in the present state of the 
country, be manufactured under ten dollars a yard ; that 
is, capital and labor are, in every thing else, so productive, 
that they could not be abstracted from other employments 
at the same rate of profit, unless the manufacturer could 
receive ten dollars a yard for his cloth. Now, suppose that, 
in order to enable him to do this, a duty of five dollars a 
yard is levied on imported cloth, by which the price of all 
cloth is raised to ten dollars a yard, that thus it may be in 
the power of a manufacturer, to employ his capital and 
labor in this manner. There is no doubt that thus the 
cloth manufacture might be established. 



144 PROTECTING DUTIES. 

Now I think it evident, upon inspection, that the pro- 
ductiveness of labor, is not by this operation, increased. 
The reason why cloth was not manufactured before, 
was, that the productiveness of labor and capital, in this 
mode of investment, was lower than the average pro- 
ductiveness of labor and capital in other modes of 
investment. All that has been effected is, to raise the 
productiveness here, to the general average elsewhere. 
There has been nothing done to render it any greater, 
either in this or in any other employment ; for, I presume 
that no one will contend, that one kind of industry should 
be really more highly paid than another ; nor that, if it 
were desired, it could be effected, without the aid of a 
direct monopoly. 



But the manufacturer now gets ten dollars for that, 
which before would bring only five. Let us inquire 
whence this additional five dollars comes. 



It is evident that government possesses nothing. All 
that it possesses, is precisely so much taken from the 
annual revenue of individuals. In this case, therefore, 
it really bestows nothing, but only causes a transfer of 
annual revenues, from one party to another. The case is, 
therefore, the same as it would be if, while there had been 
no duty laid, every man had been allowed to buy cloth 
for five dollars a yard, but had been obliged, for every 
yard that he bought, to pay five dollars to the manufac- 
turer. It would be the same thing to both parties as at 
present. The consumer would then, as now, pay ten 
dollars a yard for cloth, and the manufacturer might sell 
it for five, if he received five more as an additional gra- 
tuity. The five dollars that is added to the revenue of 
the one, is precisely five dollars taken from the revenue 
of the other. 



PROTECTING DUTIES. 145 

Now, if this be the fact, inasmuch as what is added to 
the productiveness of the industry of the one class, is taken 
from the productiveness of the industry of the other class, 
it would seem that what the one gained, the other lost; and 
hence, that there could be no increased stimulus to indus- 
try -07i«f/j,e lohole, since, by as much as the one is stimu- 
lated, the other is depressed. But this is not all. What 
you have given to the one class, has- only raised his mode 
of labor to the point of productiveness, at which that of 
all the other classes was before ; while the means by which 
this has been effected, has, to the whole amount of its 
effect, reduced the productiveness of all the other classes 
lower than it was before. By just as much as this pro- 
ductiveness has been diminished^ by so much has the 
stimulus to industry been, upon the whole, decreased. 

But yet more. As the price of the article is increased, 
the demand for the article is diminished. This has been 
before illustrated. There will, therefore, be less of the 
article made, because less of it is wanted. By all this 
diminution is the demand for labor diminished ; the price 
of labor must, therefore, fall, and the stimulus to labor he, 
hy so 'much, decreased. 

This effect will take place, in what manner soever the 
discriminating duty ma,y operate. Suppose, that from 
scarcity of wool, the price of imported cloth had, without 
any duty, been doubled ? The result would have been, 
that the demand would so have fallen off, that multitudes 
would have been thrown out of employment, and whole 
establishments would have been ruined. Suppose that, 
by a duty, we exclude the foreign cloth, and make it our- 
selves. There is still a less quantity made, than before. 
But the imported cloth was not to be had for nothing. 
Some of our own population were obliged to raise the 
products, which we sent in exchange for it. As we do 

19 



146 PROTECTING DUTIES. 

not take their cloth, they cannot take owe produce. Of 
course, all those who labored in the products which ivcre 
exchanged for cloth, are out of employment. There was 
a demand for a 'sufficient amount of their labor to purchase 
one thousand bales of cloth ; suppose, now, there is a de- 
mand for labor sufficient to make only five hundred bales 
of cloth. By all the diiference, therefore, between the labor 
necessary to procure one thousand bales by exchange, and 
that necessary to manufacture five hundred bales, is the de- 
mand for industry diminished, and, of course, the stimu- 
lus to industry weakened. 

Again: The system of discriminating duties proceeds 
upon the principle, that the more of our own labor Ave 
employ upon a product, the greater is the encouragement 
to our own industry. This is the reason why we are 
advised to do our own labor, and manufacture our own 
goods, instead of allowing other nations to manufacture 
them for us. Now we have no disposition, at present, to 
deny this assertion, and are willing by it to test the sys- 
tem in question. In the one case, we import cloth for 
five dollars a yard, and, in the other, we tnake it for ten 
dollars a yard. When we make it for ten dollars, we 
employ only the labor necessary for making it. When 
we import it, we employ, first, the labor necessary in 
making the articles which we send abroad, with which 
we purchase it ; and secondly, the labor necessary to 
transport those articles to a foreign port ; and, thirdly, the 
labor necessary to transport the cloth here, together with 
the labor necessary for the construction of shipping, for 
the two voyages. Now it is manifest, if these things be 
taken into consideration, that our labor makes up a much 
larger portion of the price of the imported cloth, than of 
that which is Qiiade at home. By all this difference, there- 
fore, the imported cloth creates a larger demand for domes- 
tic industry. This would be the case, even where the 



PROTECTING DUTIES. 147 

quantity annually consumed was the same. By how 
much more is this the case, when it is considered that, 
by the augmentation of price which this system occa- 
sions, the quantity absolutely consumed must be greatly 
diminished. 

We see, then, what is the tendency of a system of this 
kind. So far as the manufacturer is concerned, it cannot 
increase his profit beyond the average profits of every 
other employment ; for, if competition be allowed, capital 
and labor will flow into it, whatever may be its advan- 
tages, until its profits fall to the general level. In the 
mean time, the demand for other labor is diminished, by 
the reduced consumption created by a rise of price,. and 
by using an article into which less of our own labor enters 
as a constituent of price ; and also, as this rise of price 
increases the expenses of living, it makes even these 
reduced wages of less value than they were before. 
Hence the tendency is, to reduce the profit of capital and 
labor in the whole community lower than they were 
before such duty was imposed. To this reduced average, 
manufacturers must conform ; and hence, by this very 
operation, they themselves must suffer. Hence we see 
the reason why, when once a duty is imposed for the 
protection of a particular branch of manufactures, it is not 
long before a larger protective duty is demanded ; and also 
why a protective duty, which at first is followed by great 
manufacturing enterprise and success, is so commonly 
afterwards followed by so universal a depression of manu- 
facturing industry. 

Nor is this all. The rise of prices must, of necessity, 
follow a protecting duty ; for this is its very object. Its 
object is, to raise the price of some particular product, so 
that it may be created where it could not be created 
before. If it produce no rise of prices it is useless. 



148 PROTECTING DUTIES. 

Now, a rise of prices raises the cost of production, and, by 
its whole effect, must raise ^ the price of every product 
which we create. By this whole effect, therefore, is our 
foreign market injured. If we can raise cotton at ten 
cents a pound, and bring it into market as cheap as other 
nations, we have as good an opportunity as they, for 
selling it. If we can raise it at nine cents, we can under- 
sell them, and supply the whole market ; or, if we sell it 
at the same price as before, we gain one cent more on the 
pound. If, by increase of the expenses of living, we 
cannot raise it for less than eleven cents a pound, they 
will undersell iis, and we shall be obliged to give up the 
raising of cotton, either partially or altogether : and the 
industry engaged in raising and transporting the cotton, 
and what we receive in exchange for it, must be either 
partially or wholly thrown out of employment. Every one 
must see, that the manufactures of England could be af- 
forded much lower ; that is, would be able much better to 
compete with those of other nations, if, by abolishing her 
duties on corn, her manufacturers could be supplied with 
the necessaries of life at half the present cost. At the 
same profit to the laborer and capitalist, her products could 
be afforded at a price less than at present, by all the dimi- 
nution of the expenses of living. By this difference, she 
would both undersell other nations and increase the de- 
mand for her manufactures, thus reaping, at once, a 
double advantage. 

But once more : It is seen that, by such a system, the 
course of industry and of capital in a nation, must be 
greatly changed. Thus when an article is imported, one 
class of producers must labor to create the article which 
we exchange for it ; another class must build ships to 
transport it ; and another class must carry on the trans- 
portation. By a discriminating duty, all these classes 
^must, either in whole or in part, be thrown out of employ- 



BOUNTIES. 141) 

inent, and this capital be either reduced in vahie, or ren- 
dered wholly useless. Now this is a serious injury, both 
to the capitalist and the laborer. The property of the 
one and the skill of the other are rendered useless, and 
by so much is it a total loss to the country. It may be 
said, let them seek other employments. True ; they 
onust do this, or starve ; but this renders it not the less 
true, that there has been so much loss. If a man's house 
be burned down, it is easy to say to him, move into 
another house ; but this does not alter the fact, that his 
house has been burned down, and that he has suffered loss 
to precisely this amount. 

But, suppose he turn to the other employment. It has 
been shown that the average of profit, in this employment, 
cannot be higher than the a,verage of profit was, in the 
employment which he left. He is then no better off than 
he was before, and, in the mean time, he has lost the skill 
and capital which he spent years to acquire. By all this 
amount of depreciation, therefore, is he, arid of course, the 
whole country, poorer by the exchange. 

Of Bounties. The principle of bounties is the same 
as that of discriminating duties. The manner in which 
they are bestowed, is the following : If a manufacturer 
cannot produce cloth for less than ten dollars a yard, and 
the imported cloth can be procured at five dollars, a bounty 
of five dollars a yard is given him, for every yard he manu- 
factures, or for every yard he exports. The cloth, then, 
is sold, either at home or abroad, at five dollars, and he 
also receives five dollars as a gratuity. 

The principal reasons urged above, apply to bounties. 
They are, however, less objectionable, for several reasons : 

1. The price of the article is not visibly raised, and the 
consumption, therefore, on tjiis account, is not so much 
.diminished. 



150 PROTECTING DUTIES. 

2. The encouragement given , in this manner, is cheaper ; 
that is, we pay only for what is made, while, by discrimi- 
nating duties, we pay the same, whether any thing is made 
or not. We pay a very heavy duty on cutlery in this 
country, while not a hundredth part of the cutlery used, 
is made here. It would be one hundred times cheaper, to 
pay a bounty equal to the present duty on cutlery, and it 
would be, for aught 1 can see, just as good for the cutler. 
The whole effect of this mode of encourgement is, to pay 
one man as much more as the bounty amounts to, for pro- 
ducing an article, than we should pjay another man ; that 
is, one man will do it for five dollars, and we engage anoth- 
er to do it for five dollars, and give him five dollars besides, 
for the sake of economy. 

I have, thus far, considered this subject solely in respect 
to its connexion with economy ; that is, as it is favorable 
or unfavorable to production. It is, however, obvious, 
that an entirely distinct argument might be constructed 
on another, that is, a moral ground. It might be asked, 
by what right does society thus interfere with the property 
of the individual ? when did the individual surrender this 
right ? and how wise v/ould it be for him to surrender it ? 
It is in vain here to urge, that society has the right to 
destroy individual property, in cases of extreme necessity ; 
because, in order to render this plea available, it must be 
shown that this is a case of extreme necessity. And 
besides, if society destroy individual property in case of 
extreme necessity, it is always bound to make good the 
loss to the individual. I think that, if the protected 
interests were obliged to make good the loss which the 
system inflicts upon all other interests, the demand for 
protection would be less unjust than at present ; and pro- 
tection would be considerably less injurious. 

But, as these are (juestions of righf. and belong rather 



OBJECTIOiNS CONSIDERED. ir,1 

to Moral Philosophy than to Political Economy, we shall 
not, in this place, discuss them any further. 

But, in opposition to what has been offered, several 
objections have been urged. It may be proper to notice 
here, some of those which are most commonly advanced. 

I. The above argument is made to turn upon produc- 
tion alone, and proceeds upon the supposition, that the 
prosperity of a nation depends upon the abundance of the 
productiveness of its industry, more than upon any thing 
else. In order to meet this view of the case, it has been 
said, that production is a matter of no consequence to a 
nation's prosperity, and that, in order to make a nation 
rich, happy and powerful, all that is necessary is, to 
encourage and stimulate co?isumption. 

1. To this it maybe ansAvered, that this assertion leax^es 
the above argument untouched, so far as production is 
concerned ; that is, it does not deny that the efiects of 
discriminating duties upon production, are such as we 
have shown. 

2. But secondly : If a man assert that the wealth of a 
nation is the result of its consumption, and not of its pro- 
duction, he must also assert that the hand of the prodigal, 
and not that of the diligent, maketh rich ; that industry 
and frugality are the sources not of wealth, but of poverty ; 
that fire and sword, devastation and murder, arc national 
blessings ; that loe ought to pay other nations, instead of 
their paying iis, for spoliations of property ; that incen- 
diaries should be rewarded, instead of being hanged ; and 
that the way to render a city rich, happy and prosperous, 
is to reduce it to ashes. If a man really believe this ; I do 
not say if he assert it ; his case is beyond the reach of 
ratiocination ; and he must be recommended to the kind 
attentions of a discreet and judicious medical adviser. 



152 OBJECTIONS CONSIDERED. 

II. It has also been urged, that the only method of ren- 
dering products cheap, is to encourage competition ; that 
competition is the great source of increased productiveness 
of labor, and that to excite competition among our own 
manufacturers, by means of higher duties, is the only sure 
method by which to cause any article of necessity to be 
produced at the lowest possible rate. 

To this objection we reply, that the principle assumed 
is e7Tonedus ; and that the reasoning from it is self-destruc- 
tive. 

1. The principle assumed is erroneous. Although free 
competition is necessary, to reduce prices to their natural 
rate ; yet beyond this, competition, within long periods, 
can have no effect whatever. The price of every article 
is determined by the cost of its production : that is, by 
the labor and capital necessary to produce it. Its price 
can be reduced in no other manner than by reducing this 
cost. If the materials can be furnished cheaper, and it 
can be produced by less labor, its price will fall ; but it 
can fall from no other cause. If it be a monopolized arti- 
cle, the producer may, over and above a fair remuneration 
for his expenses, demand an excessive profit. If there be 
a free competition, his profits will be reduced to the gene- 
ral average of other capital and labor. A competition 
which obliged a producer to sell for less than cost, would, 
of course, ruin him, and would be a loss to the commu- 
nity. Such is the case in times of manufacturing depres- 
sion, when the producer is obliged to sell at a loss. These 
are surely not times of prosperity. The result of such 
competition is, to drive a portion of the producers out of 
employment ; a less amount of the product is created, 
competition is diminished, prices rise to their natural 
level, and the whole effect of competition is at an end. 
If, then, when there is no monopoly, competition, be it 



OBJECTIONS CONSIDERED. 153 

ever so gi'eat, can reduce the price of no article perma- 
nently below the cost and charges of its production ; and 
that by this cost, its price will always be determined, be 
the competition whatever it may ; it is evident, that the 
only way in which the price of any thing can be really 
reduced J must be by diminishing the price of the material 
and labor employed in creating it ; that is, by rendering 
every thing as cheap as possible. And it is also evident, 
that by raising the price of articles of consumption ; that 
is, of the articles of living, we shall raise the price of what- 
ever is produced, let the competition be ever so great. 

But, secondly, the argument drawn from the assertion 
is self-destructive. If it be the fact that competition is 
the great and proper cause of reduction of price, then, the 
wider the competition, the greater will be the reduction 
of price. If this be so, we should not only open our ports 
to every other nation, but should abolish import duties 
altogether, even for the sake of raising a revenue, and 
sustain the expenses of civil government, altogether by 
direct taxation. It would, however, be a new mode of 
encouraging competition, if the citizens of New York 
should forbid every one, not a native of that city, to exer- 
cise the trade of a carpenter or joiner, within the limits of 
their jurisdiction. In what manner such an act would 
reduce the prices of house-building, I confess myself 
unable to discover. 

I think, therefore, that the system of discriminating 
duties cannot be defended on the ground that they, by 
competition, tend to reduce prices. 

III. Again : It is asked, is it not better to labor for our- 
selves, than to have others labor for us ? 



20 



154 OBJECTIONS CONSIDERED. 

I answer, undoubtedly, We must labor for ourselves, 
unless we mean to live either by begging or by stealing. 
And this is really the only alternative which the Creator 
has left us. On this point, therefore, there is no dispute. 
It is agreed, on both hands, that it is better to labor for 
ourselves, than to have others to labor for us. 

Whatever either a man or a nation possesses, except by 
robbery or begging, must be the production of its own 
labor. The question then, is, whether it is better for us 
to receive a greater, or to receive a less result from our 
labor. Every man must labor for a coat. But is it better 
for him to procure it by labor, for five dollars a yard, or for 
ten dollars ? Is it better that he should, by exchange, 
earn it by five days' labor, or make it for himself, by 
fifteen days' labor ? He procures it as much by labor in 
the one case, as in the other. I do not see that there can 
be any question, in which way his labor can be most 
profitably expended. If a manufacturer wish for oranges, 
he can procure them in no other way than by labor. The 
question is, whether he shall procure them by labor in 
manufactures, or by labor in raising them. In the first 
case, a day's labor will produce, by exchange, a hundred ; 
in the second case, it will cost several days' labor to pro- 
duce one. The question is, which is the preferable way, 
in which, by labor, a manufacturer shall produce oranges ? 

IV. But it is said, although we may be obliged, at first, 
to procure manufactures at a higher price, yet, having 
once introduced them, they will, in the end, become 
cheaper than before ; and thus, our ultimate benefit will 
more than repay our temporary loss. 

In order to consider this objection, it will be necessary 
to refer to what we have already remarked on the nature 
of annual and fixed capital. 



OBJECTIONS CONSIDERED, 155 

It is evident, that, in the first stage of any society, there 
exists nothing but the earth with its capabihties, and man 
to labor upon it. The labor of man produces an annual 
capital. If he have been industrious and frugal, there 
will have arisen an annual surplus, which must, of neces- 
sity, be transformed into fixed capital ; and it is so trans- 
formed, for the purpose of increasing the annual capital. 
Thus, every addition to the fixed capital for this year, 
lays tlie foundation for the investment of a larger amount 
of fixed capital for the next year ; and thus nations grow 
rich, and the demand for fixed capital is annually in- 
creasing. 

It is evident that the investment in fixed capital will be, 
first, in those instruments themselves, necessary for the 
direct increase of annual production, as ploughs, fences, 
houses, barns, &c.; and, secondly, in the machinery neces- 
sary to the creation of these, and of the productions for 
annual consumption ; that is, it will be in manufacturing 
establishments. But, inasmuch as the capital of a country 
is at first small, a nation will, of necessity, at first invest 
its annual surplus in those manufactures which require 
the least capital, and of which the price is most enhanced 
by transportation. As capital increased, it would be able 
to make larger investments of fixed capital. Manufactures, 
which it would have been impossible for it to conduct 
profitably in its tenth year, it may conduct profitably in 
its fiftieth year ; and what it could not conduct profitably 
in its fiftieth year, it may very profitably conduct in its 
one hundredth year. And the reason of this variation is 
two fold. In the one case, it did not, and in the other 
case it did, possess the capital necessary for the invest- 
ment in this particular branch of manufactures ; and, in the 
second place, though it possessed the requisite capital, that 
capital could not be taken from the employments in which 
it was at present engaged, and invested in any thing else, 



156 OBJECTIONS CONSIDERED. 

without a loss, that is, a diminution of profit. As soon, 
however, as the most necessary investments have been 
made, their annual product will enable the nation to com- 
mence something else. By the multiplication of capital, 
interest is diminished, and a nation is gradually enabled 
to produce for herself every thing for which she has the 
natural facilities. And hence, the time when any manu- 
facture can be profitably established, in a country which 
possesses natural advantages for it, is decided by the 
amount of the capital of that country ; the amount of 
annual investment which it is able to make in fixed capi- 
tal ; and on the rate of interest of capital at the period in 
question. 

Now, suppose that the system of discriminating duties 
left the prices and means of accumulation unaffected. In 
this case, the period of profitably producing the article in 
question would arrive, at the same time as if no such sys- 
tem had been adopted. Previously, therefore, to this titne, 
the article must have been purchased by the whole com- 
munity, at an additional and unnecessary expense ; since, 
when this time arrived, in the natural course of things, 
the manufacture in question will commence, just as though 
nothing had been done, and just as every other manufac- 
ture had previously commenced. In this case, then, I see 
not that there would be any gain. All that has been paid, 
therefore, is so much unnecessary expense, withour ren- 
dering this kind of investment profitable to the whole com- 
munity, any sooner than it would have been, had no such 
expense been incurred. 

That, however, a discriminating duty does not increase 
productiveness, but that, on the contrary, it diminishes it, 
has, I think, been already shown. Now, by just so much 
as it diminishes productiveness, and of course diminishes 
annual capital, by so much it postpones the period, at which 



OBJECTIONS CONSIDERED. 157 

the manufacture in question can be profitably established. 
Hence, the state of the case is this : In the present con- 
dition of capital and labor, the manufacture of a particular 
product is unprofitable. In order to produce it noio, instead 
of producing at a later period, we diminish the produc- 
tiveness of all other labor. And the only effect of this 
imposition which we have laid upon ourselves, is, instead 
of hastening the period of its profitable establishment, to 
postpone it to a still more distant period. 

But, this is not all. We see that this is all done, and all 
this expenditure is increased, without any certain knowl- 
edge of the result. It cannot be certainly known when 
the period will arrive, at which the manufacture, in favor of 
which we have laid the discriminating duty may be profita- 
bly commenced, or whether, indeed, it can ever be com- 
menced at all. If it can never be commenced, we have thus 
imposed a duty by which we are all made so much the 
poorer, without the prospect of any benefit. And if it may 
profitably be established at some future time, but we know 
not when that time will arrive, we are paying out our 
money at random ; that is, v/e know not whether we shall 
gain or lose by the exchange. Supposing a benefit in fact 
to result, it is worth a given sum, and no more ; but we 
have no means of knowing whether the sum which we 
pay, is only equal to the benefit, or whether it is ten times 
greater. Now, that it is very possible for a nation thus to 
pay for an advantage, supposing an advantage to be gained^ 
vastly more than it is worth, is manifest. 

To illustrate the amount which has been frequently 
expended to gain this supposed advantage, I subjoin the 
following instances from the Edinburgh Review, for 
October, 1829: 

" The French duties on iron, from 1814 to 1822, have 
directed much capital to the iron trade. In 1818, 1, 140,000 



158 OBJECTIONS CONSIDERED. 

quintals of iinwrouglit iron were produced, in France ; in 
1825, 1,976,000 ; in 1829, 2,269,000. Thus far, the sys- 
tem has succeeded. 

On the contrary, as foreign iron is imported at a duty 
averaging twenty francs, the price of the whole 2,269,000, 
above what it could have been imported for, is 40,538,800 
francs, the direct cost for protection. This is about £20 
sterling a-piece to every person engaged in the iron trade. 
The effect of these measures is, to add fifty francs to the 
price of a plough, and to render cotton machinery one- 
third dearer than it would be, if imported. The price of 
charcoal has been doubled or trebled, and, from twenty- 
five to fifty per cent, has been added to the price of iron 
and wood. So great is the injury to other branches of 
production. 

And yet, the iron trade is depressed. This is owing to 
the fact that too great a portion of capital has been directed 
to the iron trade ; and also, to the increased price of char- 
coal. It must also necessarily follow, from what has been 
said above. This pressure v/hich has been brought upon 
other branches of production must reduce the average 
ratio of profit ; and to this average the iron trade must sink^ 
as well as every thing else. Here there is an injury done 
to every other branch of business, and yet the iron business 
is not at the average rate of profit ; that is, it it dejDressed. 
There is a great annual loss ; but where do we see the 
prospect of a subsequent benefit. 

The Sugar Trade. To encourage her colonies, France 
lays a duty of fifty francs per quintal , on all foreign sugars. 
This has increased the quantity made at home and at her 
islands. So far, it has succeeded ; but, 

2. The diflerence between the duty on foreign and the 



OBJECTIONS CONSIDERED. 15f^ 

duty on her own sugars, amounts to 32,945,000 francs. 
This is the bounty paid to the sugar growers of Mar- 
tinique, and at home. 

3. The qua.ntity of sugar consumed is probably less, by 
one-third, than it would otherwise be. England, with 
lialf the number of inhabitants, consumes two and a half 
times as much sugar as France. 

4. But it is said, that by this means, beet-root sugar will 
yet supply France at the ordinary price. It must, how- 
ever, take twenty years, under the present system, in order 
to do this. The present protection costs £1,400,000 per 
annum. Suppose this to continue for twenty years, it will 
amount to £28,000,000 sterling, the interest of which, at 
five per cent., will buy, at two and a half pence per pound, 
126,000,000 pounds of sugar per annum ; or nearly the 
whole annual amount of sugar now consumed in France. 

The Cotton Manufacture. By pushing forward those 
products, for which she has no capabilities, she has 
diminished those to which she is adapted. Countries 
which formerly bought of her, now that she refuses to 
receive their products, refuse to receive hers. Hence, 
the exports of wine, her natural product, have fallen off. 
Before the Revolution, her export of wine, averaged 
100,000 tons per annum. Since 1S20, it has varied from 
39,000 to 63,000 tons. The result upon her silk trade 
has been the same. She has obliged other nations to 
raise silk for themselves."* 

Such are some of the certain evils of such a system. 
These, surely, ought not to be voluntarily imposed upon 



* I have marked the above passage as a quotation, although I have 
abridged the extract, without giving the exact words. 



160 OBJECTIONS CONSIDERED. 

ourselves, without equal certainty of future benefit, and a 
benefit so much superior to that which we should other- 
wise have reaped, as to compensate us for all the evils 
and expenses which we impose upon ourselves. And if 
it do no more than this, we are the losers, by all the cost 
of the agency for doing that which would as well have 
been done without us. But, if the system itself do 
nothing towards hastening the time of profitable invest- 
ment in manufactures, then it is an immediate and a very 
great and wide-spreading evil at present, and it tends to 
nothing but evil for the future. 

For these reasons, I do not believe that the direct efforts 
of government are to be numbered among the means for 
encouraging the application of labor to capital. Their 
good effect, if it exist, must, therefore, be sought, not in 
their effect upon production, but upon something else. 

But, it may be asked, can a government do nothing to 
promote the industry of a people, and to increase the 
amount of their production ? I answer ; they can do 
much. 

1. They can enact wise, wholesome, and equitable 
laws, and thus protect the individual in the exercise of 
his right of person and property. 

2. They can do much to accomplish the universal 
diffusion of the rtieans of knowledge, by the promotion 
of education among all classes of people. 

3. They can do much for the promotion and extension 
of science, by fostering seminaries of leaniing. 

4. They can originate that knowledge, which must oth-' 
erwise be obtained at great individual expense. As, 



OBJECTIONS CONSIDERED. 161 

1. By experimental farms, of which the results should 
be accurately registered, and published to the whole com- 
munity. 

2. By experimental manufactures, which might show, 
from time to time, what branches of manufacture could 
profitably be introduced into a country, and how they 
might be most successfully conducted. 

In this manner, much might be done, and at small 
expense. When these means have been tried, and have 
failed, it will be time enough to make other and more 
expensive experiments. 

4. They can do much, by confining themselves to their 
own appropriate duties, and leaving every thing else alone. 
The interference of society with the concerns of the indi- 
vidual, even when arising from the most innocent motives, 
will always tend to crush the spirit of enterprise, and 
cripple the productive energies of a country. What shall 
we say, then, when the capital and the labor of a nation 
are made the sport of party politics ; and when the power 
over them, which a government possesses, is abused, for 
the base purpose of ministering to schemes of political 
intrigue ? 

So far as I am able to discover, such are the most 
important conditions on which the productiveness of any 
society depend. They are briefly these : Industry and 
Frugality^ Virtue and Intelligence. Possessed of these, 
no nation, with the ordinary blessing of God, can long be 
poor. Destitute of either of them, whatever be its natural 
advantages, no nation can ever long be rich. Patriotism, 
no less than religion, would, therefore, teach us to culti- 
vate these habits in ourselves and in others ; and he is th© 
purest patriot, who cultivates them most assiduously. 

21 



BOOK SECOND, 



p 



EXCHANGE. 

Exchange, is a transaction, in which two individuals 
mutually and voluntarily transfer to each other the right 
of property, to a given amount, either in capital or labor. 

This transfer must be both mutual and voluntary by 
both parties, or else it is robbery by the one party. If 
property, without the right of possession, be given in 
exchange, it is fraud. If I give a horse in exchange, 
which does not belong to me, I confer no right of property; 
for I have none to confer ; since the real owner may reclaim 
him, at any moment. The exchange may be either of capi- 
tal by both parties, as if A and B exchange wheat for corn ; 
or of capital for labor, as when A gives B a bushel of wheat 
for a day's labor ; or of labor for labor, as when A agrees 
to work for B to-day, on condition tha,t B shall work for 
him to-morrow. Exchange is of three kinds, viz. : 

I. Barter in general or exchange in kind. 

II. Exchange by means of a metallic currency. 

III. Exchange by means of a paper currency. 



CHAPTER FIRST. 

©F BARTER OR EXCFIANGE IN KIND. 



SECTION I. 

OF THE PRINCIPLES IN THE PRESENT CONSTITUTION, WHICH 
GIVE RISE TO EXCHANGE. 

1. It has been already shown, that human labor, of 
some kind, is necessary to production ; that is, to the 
creation of whatever has the power of gratifying human 
desire. Hence, without labor, no desire would be grati- 
fied ; that is, the race would speedily perish. As we have 
said before, the law of our being, imposed upon every 
individual, enacts that, by the sweat of our face we shall 
eat our bread. 

2. But we are taught, by Moral Philosophy, that by 
labor exerted upon any substance, in such manner as to 
give it value, we establish over that value, either in whole 
or in part, the right of property. If the original capital 
were our own, we possess that original capital, together 
with all the additional value, which the change that we 
have effected has created. If, by labor upon the capital 
of another, we have raised its value, we establish a right 
,to a portion of it, to be estimated by the respective values 
,of the labor and capital employed. Nay, this capital is 



PRINCIPLES WHICH GIVE RISE TO EXCHANGE. 167 

nothing but the result of pre-exerted labor. So that the 
capitalist contributes his past, and the laborer his present 
labor, and they share the product between them. 

3. Hence we see, from the very conditions of our being, 
that the ^eij act of creating a value appropriates it to a 
possessor. This holds true of every thing not the spon- 
taneous gift of God. Hence, every thing created by 
man, belongs to some man ; that is, he possesses over it 
the right of property. And this right of property is exclu- 
sive ; that is, he has the right to use it as he will, to the 
exclusion of every man and of all men. And, provided 
he do not interfere with the rights of others, no man can 
interfere with his use of whatever product he has cre- 
ated, without a violation of moral law. 

4. Different men are constituted by the Creator with 
different aptitudes for different pursuits, and with differ- 
ent dispositions towards those .pursuits. One man is 
adapted to investigate, and another to apply to practice, 
the laws of nature, and another to perform the operation 
by which those laws are made to create value. And these 
aptitudes are still further subdivided. One man is better 
adapted to investigate physical, another intellectual, and 
another moral laws. Thus, also, in the various pursuits 
of operative industry, one man prefers agriculture, another 
manufactures, and another navigation. And it is found, 
as might be expected, that the disposition towards a par- 
ticular operation, severally corresponds with a man's apti- 
tudeioTii : that is, that, in general, a man is most strongly 
disposed to devote himself to that particular occupation, 
for which God has given him the greatest aptitude. 
Indeed, the disposition, in most cases, will do very much 
to create the aptitude. A man always labors more suc- 
cessfully in an occupation which he likes, than in one 
which he dislikes. 



168 PRINCIPLES WHICH GIVE RISE TO EXCHANGE. 

5. Hence, a great public, as well as private advantage, 
arises from every one's devoting himself to that occupa- 
tion which he prefers, and for which he is specially fitted. 
Inasmuch as he likes it best, he is thus happier than he 
Would be in the pursuit of any other. Every one thus 
being able to do that which he likes best, every one will 
derive from this source, all the happiness which it is able 
to confer. And, inasmuch as he is better fitted for it, he 
will, with the same labor, create a greater amount of value 
than he will by labor in any other employment. He will 
also create the value much more perfectly. The annual 
amount of value created in a community, will thus be 
greatly increased, with the same amount of labor, and, 
with a much greater amount of happiness. If every 
man labored at that employment in which he could cre- 
ate an amount of value equal to twenty, there would be, 
by the whole society, just twice as much created, as if, 
by changing occupations, each one labored at that for 
which he could create a value equal only to ten. If 
all the different classes of laborers were, for a year, to be 
obliged to exchange work with each other, every one can 
perceive that, for that year, production would almost abso- 
lutely cease. 

Were this all, though every man created his own par- 
ticular value v/ith the greatest possible success, yet each 
man would, manifestly, possess but one value. The wheat 
grower would have nothing but granaries full of wheat ; 
the carpenter, nothing but ranges of houses ; the stone- 
cutter, nothing but piles of stone ; and the shoemaker, 
nothing but thousands of shoes. But Avhile there exists 
in every man, both the aptitude and the disposition for 
the creation of a particular value, there exists equally in 
every man, a desire to enjoy every value that can be created. 
A man may like to create a value of which he desires to 
use but very little himself; nay, for which, in itself, 



PRINCIPLES WHICii GIVE RISE TO EXCHANGE. 169 

he perhaps has even less deshe than most other men. The 
man who is the fondest of fishing, may be, by no means, 
a great lover of fish. He Avho is the fondest of hunting, 
may be, by no means, the fondest of game. No man 
supposes, because a man is fond of fox-hunting, that he 
is fond of fox-eating. Thus, we see, that the desire for 
the creation of value, is one thing, and the desire for 
using the value created, is another. The one is limited 
to a single object, and the other is as widely extended as 
the objects to which it can be directed. And it is evident, 
that the one form of desire is as much intended to be grati- 
fied as the other. He who created the desire, and also 
created the object which would gratify it, intended the 
one for the other, restricting man only to the modes and 
degree of gratification which He has appointed. Civiliza- 
tion and social happiness advance, just in proportion as 
the greatest number of the desires of man are gratified, in 
conformity with the laws of the Creator. 

7. We see, then, that man is created with the aptitude 
and the desire for the creation of one product, but with 
the desire for the enjoyment of a thousand products, and, 
that the gratification of one of these forms of desire is as 
much the intention of his Creator, as the gratification of 
the other. He is intended to produce one thing, and to 
hold -this thing produced by the right of property, while 
at the same time, every man is intended to require, for 
the gratification of his desires, a thousand things. Now, 
it is the existence of these contrary indications in his 
nature, that creates the necessity for exchange. The 
right to use his product as he pleases, is also the right to 
transfer it to whomsoever, that is, to exchange it with 
whomsoever, he pleases, and for whatever he pleases. 
By doing this, all the indications of his nature are ful- 
filled. The right of property is preserved inviolate. 
]Every one may employ his own capital and industry as 
22 



170 NATIONAL EXCHANGE. 

he pleases, that is, as will best promote his o'vvi'n happiness^ 
and also as will add the most abundantly to the wealth 
of the whole community ; and, at the same time, by 
means of the products of his single branch of industry, 
he may procure every object of desire that every other 
man has created. And, inasmuch, as by division of labor, 
on the principle of which we have spoken, a larger amount 
will be created, and in greater perfection, he will procure 
every object at less labor, and in more perfect condition,^ 
than would be possible in any other manner. 

We see, therefore, that the necessity of exchange, as 
truly enters into the conditions of our being, as that of pro- 
duction. Without exchange, there could be no division 
of labor, and, of course, only the smallest possible amount 
of production. Without exchange, there would rarely be 
any stimulus to labor ; for labor could add but little to our 
means of gratification, beyond the most absolute necessa- 
ries of life. There would be no stimulus to form societies, 
since, as man depended solely upon himself, he might as 
well be solitary as social. Hence, all progress in civiliza- 
tion would be hopeless, and each generation would tread 
in the footsteps of that which had preceded it. 

8. I have, thus far, spoken merely of exchange between 
the individuals of the same society. I think it evident, 
however, that the same principles apply with equal force 
to the exchanges between different societies. 

The aptitudes of different nations for the creating of 
different products, has, in many cases, been fixed by 
unchangeable, geographical, and physiological law. Cot- 
ton, coffee, spices, dye-stuffs, sugar, rice, and many of 
the most valuable fruits and medicines, can be cultivated 
only in southern latitudes. Wool, wheat, and bread stuffs 
generally, flax, and the most valuable animals, ai'e fomid 



NATIOJMAL EXCHANGE. 171 

only in temperate climates. Iron is found in northern 
latitudes ; and furs, hemp, and feathers are brought from 
climates still further north. Besides, one country is better 
adapted to commerce, another to agriculture, and another 
i.0 manufactures. 

Besides, as we have already shown, a society, at one 
period of its history, is better adapted to one sort of pro- 
duction than to another. When capital is scarce, and 
land is cheap and fertile, a nation is better adapted to 
agriculture; when capital becomes abundant and land dear, 
it becomes gradually better adapted to manufactures : 
that is to say, nations, as well as individuals, both by 
original endowment and accidental circumstances, have 
their special adaptations to the creation of particular pro- 
ducts. I suppose it unnecessary to state, that nations, 
that is, people, if left to themselves, are, like individuals, 
disposed to avail themselves of the peculiar advantages 
bestowed upon them by their Creator. Self-interest 
teaches them this lesson with sufficient clearness, and 
they willingly practice it, if left to their own natural in- 
stincts. 

It is also evident that, by each nation's devoting itself 
to that branch of production for which it has the greatest 
f^icilities, either original or acquired, its own happiness will 
be better promoted, and a greater amount of production cre- 
ated, than in any other manner. And while all nations 
thus appropriate their industry, a much greater amount of 
annual value will be created for the whole human race, than 
. by any change that could possibly be made. If Cuba 
should relinquish the raising of coffee and sugar, and de- 
vote herself to the raismg of wheat ; and New York, relin- 
quishing the culture of wheat, should betake herself to the 
raising of coffee and sugar, would not both communities 
be poorer, and would not the price of coffee, sugar and 



ITia NATIONAL EXCHANGE. 

wheat be increased over the whole world ; that is, would 
not all the world, and these countries especially, be poorer 
than they are now? 

But, whilst it is thus evident that every nation is 
intended by the Creator to improve its own advantages, 
that IS, to create that product for the creation of which it 
has the greatest facilities ; it is also the fact, that every 
nation, and every individual of that nation, desires the 
productions of every other nation ; and is happy in pro- 
portion as it enjoys them. What nation could be happy 
without the cotton of the South, the hemp and iron of 
the North, or the wool, wheat, and manufactures of tem- 
perate climates ? Nay, let any individual look at the 
clothes which he wears, the furniture of his room, or the 
food and utensils of his table, and he will be immediately 
convinced, that every latitude of both hemispheres, and 
almost every country on the globe, are tributary to his 
happiness. His own country has peculiar adaptations, 
but they are adaptations for but few products, while every 
citizen of that country requires for his convenience, nay, 
almost for his existence, the productions of every other 
country. These desires can be gratified only by national 
exchanges. Hence we see, that national exchanges enter 
as much into the constitution of things under which we 
are created, as individual exchanges. 

And the final cause of this constitution is, in both cases, 
equally evident. 

Individuals are made thus dependent upon each other, 
in order to render harmony, peace, and mutual assistance, 
their interest, as well as their duty. Where men are 
mutually dependent upon each other, the prosperity of 
one, is the prosperity of all ; and the adversity of one, is 
the adversity of all. No one can enjoy many of the 



OF MERCHANTS. ITIi 

blessings which God has intended for him, only in so far 
as others enjoy them also ; and no one can be deprived of 
them, unless others are deprived of them to a considerable 
degree also. Thus, we see that the individual progress 
of man, is, by the constitution of things, indissolubly con- 
nected with, if not absolutely dependent on, his social 
progress. 

And, for the same reason, nations are dependent upon 
each other. From this universal dependence, we learn 
that God intends nations, as well as individuals, to live in 
peace, and to conduct themselves towards each other upon 
the principles of benevolence. Where all are mutually de- 
pendent, as in the former case, no one can prosper without 
increasing the prosperity of all, nor suffer without bring- 
ing suffering upon all. Hence, it is as truly our interest 
to seek the happiness, peace and prosperity of other 
nations, as it is to seek the happiness, peace and pros- 
perity of our own nation. ^ 

9. From the above constitution it is evident, that uni- 
versal exchange is as necessary to the welfare, and even to 
the-,existence of the human race, as universal production. 
We have already seen, that in all the departments of 
human industry, a great saving, both of time and ex- 
pense, is effected by division of labor. This is as true of 
labor in exchange, as in any other case. Since, then, ex- 
changes must be made, it will be better for the whole, if a 
part of a society devote themselves exclusively to the 
business of making them. 

Thus ; suppose that, in a given society, the labor is 
divided, so that each individual devotes himself to the 
creation of a given product. One man raises wheat, 
another rye, another wool ; one labors upon iron, another 
upon wood, another upon leather, &c. Now, these per-' 



174 OF MERCHANTS. 

sons can procure the productions of each other, only by 
exchange. But if every one, every time he needs any- 
thing, is obliged to leave his labor to find a purchaser for 
his product, he will lose much time himself, and will con- 
sume a large portion of the time of all his neighbors. It 
would, frequently take as much time to exchange a pair 
of shoes, as it would take to make them.. This additional 
time must enter into ihe price of the shoes ; and hence, 
these, and every other article of consumption, would rise 
in price accordingly. 

In such a case as this, it would clearly be a great benefit 
to the whole society, if some one should devote himself 
exclusively to the business of malting exchanges. Every 
producer might then deposit with him, whatever he had 
to exchange, instead of going in search of a purchaser. 
When this was done, every one, by going to him, might 
ascertain immediately, wliat v/as to be exchanged, through- 
out the whole community, aad at what price ; and also, 
what was required in exchange. He would thus be able, 
at once, to procure, by his own product, whatever was 
procurable for it ; and to know what he must produce, in 
order that he may procure what he may need. Thus, the 
labor of a whole day, or of several days, niight be accom- 
plished in a few minutes, in a much more perfect manner, 
than by any other method. Hence,' as all the time un- 
necessarily consumed in the other method would be saved, 
there would be much more time to be appropriated to pro- 
duction. As, in a given time, and with given labor, there 
would be greater production, every thing would be cheaper, 
that is, every one would be richer : and, at the same time, 
a reasonable profit would remain for him who devoted his 
time to the labor of exchange. 

Hence, we see that exchangers are as necessary to the 
cheapness of production, as producers themselves. Hence 



RETAIL MERCHANTS. 175 

we also see, how absurd is the outcry sometimes raised 
against them, because it is said they produce nothing. 
Did not a large class of the community devote themselves 
to this employment, it is impossible to conceive what 
would be the price of the most common and necessary 
utensil. Were the farmer obliged to carry his wheat or his 
cattle to Sheffield, to exchange for needles for his wife, 
or for a sickle for himself, who could estimate what these 
utensils would cost ? If the laborer were obliged to go 
to Birmingham for a spade, Avhich he must use in New- 
York, what would be the price of a spade, and how would 
he ever be able to gain a subsistence ? The laborer may 
sometimes complain that the merchant is rich, and that 
he is poor; that the merchant stands at his desk, while he 
labors in the street; that the mercha.nt rides in his car- 
riage, while he travels on foot. But it may be to him 
some consolation to remember, that were not the mer- 
chant rich, the laborer would be still poorer, for every 
article would be dearer, and besides, there would be no one 
to pay for the labor with which alone he is able to pur- 
chase it. Were not the merchant to be at his desk, the 
poor man would have no labor to do in the street ; and 
were not the merchant able to ride in his carriage, the 
laborer would be obliged to go barefoot. And accord- 
ingly, we see that whenever mercantile business, that is, 
the business of exchanges, is the most successful, then 
are the means of living cheaper in proportion ; and then 
are the operative classes richer ; and the avenues to riches 
are the most widely open to all. 

The persons Avho conduct the exchanges of a commu- 
nity are called merchants. They are of two classes, viz. : 
Retail Merchants, and Wholesale Merchants. 

The retail merchant carries on exchanges, between the 
inhabitants of the same country. He purchases of the 



176 RETAIL MERCHANTS. 

manufacturer or the importer, in quantities too large for 
the means of the individual consumer, and sells again, in 
any quantities that the consumer may desire. This pro- 
duces a great saving of time, and, of course, of expense, to 
the whole community. Were the manufacturer obliged 
to leave his labor, to sell a yard of calico, the price of 
calico would be trebled. Were the importer obliged to 
open his hogsheads, to sell a pound of sugar, he must 
charge accordingly. And besides, as each importer and 
manufacturer is supposed to confine himself to one par- 
ticular product, the purchaser would be obliged, frequently, 
to go great distances, and transact, with a great number of 
persons, business, which he may now be able to accom- 
plish with a single individual. Every one must thus per- 
ceive, that a consumer saves much time by purchasing his 
sugar, tea, coffee, pepper, salt, &c., at one S'hop, instead of 
going to the wholesale importers of these articles individu- 
ally ; specially, if, as is frequently the case, they lived 
some hundreds of miles asunder. So, therefore, it is 
much more economical to buy needles, tape, cotton, calico 
and silk, at one shop, than to go to the several individuals, 
in different places, who have imported or made these arti- 
tides in large quantities. In consequence of this advan- 
tage to the community, the retail dealer is able to charge 
a profit on all the articles which he sells, and at the same 
time, to furnish them at a much lower price than that at 
which the purchaser could procure them, in any other 
manner. The purchaser not only procures them cheaper, 
but he procures them of a better quality. It is the busi- 
ness of the retail dealer to understand the quality of every 
article in which he traffics, and it is for his interest to pur- 
chase it as cheaply, and of as good quality, as it can be 
purchased in the market ; since it is on the goodness and 
cheapness of his articles, that his custom depends. Hence, 
the consumer is thus enabled to employ for his benefit, a 
skill vastly greater than his own ; and at a much less cost, 



OF WHOLESALE MERCHANTS. 177 

than that, at which he could accomplish the business him- 
self. Hence we see, that retail dealers are as necessary to 
the prosperity of a country, and to the cheapness of pro- 
ductions, as any other class of persons. And it will be 
found very universally, that it is much more economical 
to employ their services, than for a man to undertake to 
do their business for himself. 

The wholesale merchant^ conducts the exchanges be- 
tween the individuals of different nations. He exports, 
in bulk, the commodities of his own country, and imports, 
in return, the commodities of another country. His own 
interest induces him to export whatever is at the lowest 
price in his own country ; that is, of what may be there 
in the greatest abundance ; and bring back in return, 
whatever will command the highest price at home ; that 
is, of which there is the greatest need. And his own 
interest will, of course, teach him to procure what he 
brings home, at the place where it can be had at the 
cheapest rate ; so that he may be able to furnish it at the 
highest profit to himself, and at the lowest price to others. 
Hence his interest, and that of the community, are the 
same. It is for the interest of the community that those 
commodities of which we have a superfluity, should be 
exported ; and the fact of this superfluity is known by 
the reduction of their price, in comparison with the price 
of Qther commodities at home, or of the same commodity 
in other countries. It is for the interest of the merchant 
to export the same commodity, because, the lower the 
price at which he purchases it at home, on the better 
terms he can exchange it abroad. It is for the interest of 
the community, that those objects of desire which are most 
wanted should be brought back in return ; and the rise 
in their exchangeable value is the proof that they are so 
wanted. It is for the merchant's interest, also, to bring back 
these very commodities ; for, from these alone, can he ex- 

23 



178 OF WHOLESALE MERCHANTS. 

pect gain, and that gain will be the greater, in proportion 
as he procures them on the most favorable terms ; that is, 
as he procures them where they are the cheapest and most 
abundant. Hence, his gain will be in proportion as he 
can transfer the productions of the earth from those re- 
gions where they are least wanted, to those regions where 
they are most wanted. And this is precisely what the 
interests of society require should be done. 

To the merchant, it is, of course, a matter of no conse- 
quence, what he exports and what he imports. Unless a 
commodity were more wanted at home than that for which 
he would exchange it, he could have no motive to make 
the transfer. And that it is so wanted, is evident from 
the fact, that the community is willing to give a higher 
price for it than for that which is exported. If he desired 
it, he could not make any profit, except by consulting the 
wants of the community ; and that profit Avill be the 
greater, in proportion as he is able to consult those wants 
with the greatest possible nicety. His gains are the gains 
of the community, and his losses are the losses of the com- 
munity. Hence, there is no reason why he should, in any 
manner, be restricted in the nature or the quantity of the 
articles which he exports or imports. The constitution 
of things, and his own self-interest, provide all the regu- 
lating forces which the nature of the ease requires. 



EXCHANGEABLE VALUE OF PRODUCTS. 17!^ 



SECTION II. 

THE GENERAL DOCTRINES OF EXCHANGE. 

I. Of the rate of Exchange, or the exchangeable value 

of Products. ' 

If two men have created their respective products, and 
are prepared to exchange them, it is manifest that they 
will not commonly exchange them, quantity for quantity ; 
because, a given amount of labor will procure a much 
larger amount of some products than of others. The same 
labor which will procure an ounce of gold, will procure a 
hundred pounds of iron. Hence, the gold miner will offer 
to exchange labor for labor ; that is, an ounce of gold for 
a hundred weight of iron. And if the miner of iron will 
not exchange on these terms, the miner of gold will pro- 
cure his iron for himself. Since, if he can thus procure 
it for himself, by a less amount of labor, than by exchange, 
he will do so. Hence it is, that the general rate at which 
every thing is exchanged, is, the amount of labor which 
it costs to produce it. 

But v\^e have previously seen, that labor appears in two 
forms, that of annual capital, and of fixed capital. Both 
of these enter into consideration, when we speak of labor 
as determining the exchangeable value of products. 

For instance : Suppose I purchase wheat, and grind it 
by hand ; I sell it again, at an additional price, propor- 
tioned to the labor which I have bestowed upon it. 
Suppose I thus earn money enough to erect a wind-mill : 
I shall then be entitled to the same amoimt of wages per 



180 EXCHANGEABLE VALUE OF PRODUCTS. 

day for my labor, and also to an additional sum sufficient to 
pay the interest of what was expended in my wind-mill, 
and also to pay for its wear and tear, in performing the 
operation. The price of grinding was, at first, only that 
of immediate labor ; it is now the price of immediate 
labor, together with interest on the amount of pre-exerted 
labor. It is, however, to be observed, that notwithstand- 
ing I am receiving emolument from two sources, and am 
growing rich faster than before, it is on terms vastly more 
favorable to the community, inasmuch as I can, for the 
same remuneration, give ten times as much in return as I 
could before. 

The case is the same, if two separate individuals are 
employed in the operation, the one owning the capital or 
stock, and the other performing the labor. In this case, 
the cost consists of the wages of labor and the interest 
on, and the wear and tear of the capital. Here, however, 
as before, the community is the gainer ; because, for the 
wages of labor and interest of capital, it receives a much 
larger product than it received before, for the wages of 
labor alone. Thus, if a machine cost one thousand dol- 
lars, and there were paid for the use of it, one hundred 
dollars a year, this, added to the wages of labor, at a dol- 
lar a day, would be four hundred dollars, allowing three 
hundred working days a year. This would be but one 
hundred dollars more than would be paid for the labor of 
the man alone. But a man, with such an instrument, 
would, probably, in a year, accomplish ten times as much 
work as he could accomplish without it. All the gain of 
the change is, therefore, for the benefit of the public. We 
see, therefore, that labor and the interest of capital, must, 
necessarily and justly, enter into the price of every pro- 
duct which is offered in exchange. The producer can 
never, for a long period, charge more than a fair remune- 
ration for his labor and capital ; because, then, it would be 



EXCHANGEABLE VALUE OF PRODUCTS. 181 

cheaper for the other party to produce it for himself. He 
cannot, for a lorig period, charge less ; because, in this 
case, he will be ruined, and must leave the employment ; 
and thus the number of producers will be diminished, and 
the value of the product Avill rise to the average rate of 
profit. 

Nevertheless, for short periods, the exchangeable value 
of any product may be raised above the reasonable rate of 
profit. If the demand exceed the supply, there will be a 
competition among the buyers ; the more wealthy will 
overbid the less wealthy, and the price will rise. This 
rise of price will induce others to devote themselves to 
supplying the demand, and thus the price will fall. If the 
supply be greater than the demand, there will arise a 
competition among the sellers, and the price Avill fall, and 
will remain depressed, until either the demand increase, or 
else until so many leave the employment, as shall reduce 
the supply to the average demand. 

It is evident that it makes no diflerence, as to the result, 
whether the ratio between supply and demand be disturbed 
by a change in supply or in demand. If the demand con- 
tinue the same, a diminished supply produces the same 
effect as would be produced by an increased demand, 
while the supply remained the same. And, on the other 
hand, demand being the same, an increased supply pro- 
duces the same result as, when, supply being the same, 
the demand is decreased ; that is, in the one case, the 
exchangeable value of the product will rise ; in the other 
case, it will fall. 

It deserves, however, to be remarked, that this effect 
produced by the disturbance of the ratio between supply 
and demand will be greater or less, according to several 
.circumstances. These are : 



182 EXCHANGEABLE VALUE OF PRODUCTS. 

1. The durability of the commodity. If it be one 
which, unless it be consumed immediately, will become 
worthless, the fall of price, from increased supply, is great. 
Such is the case with oranges, lemons, figs, fresh fish, 
&c. If, on the contrary, it be a commodity which will 
endure for years, without loss of intrinsic value, the eifect 
will be less. Thus, an increased supply of iron, produces 
in the market a comparatively small variation in the price. 

2. Variation of price, from this cause, depends, also, 
upon the ease or difficulty with which the supply may 
be increased. Thus, manufactured articles can generally 
be produced in a short time, and, if necessary, in a much 
more than usual quantit^r. Agricultural products, on the 
contrary, require a year, in order to be brought to perfection. 
Hence, if a crop fail this year, we know that there must 
be a diminished supply in the Avhole country, for the 
remainder of the year ; and hence, as there must be a 
scarcity, every one is prepared to give as much as he is 
able. But, if cotton cloth be high, unless the rise of 
price be owing to a diminished production of the material, 
this high price will cause more cloth to be made, and 
hence, before long, the price will fall. We therefore pur- 
chase only what we absolutely need, and wait for the fa- 
vorable change. 

3. It will be affected by the nature of the demand for 
the article. If it be an article of universal necessity, it 
will rise more rapidly by scarcity, and sink less rapidly 
by increased supply ; while, if it be an article of mere 
luxury, it will rise less rapidly by scarcity, and sink more 
rapidly by increased supply. When every one must have 
a commodity, the demand is constant, and every one is 
alarmed at the prospect of suffering ; hence, he purchases 
it at any price. And, on the other hand, if the supply be 
abundant, the holder knows that the ordinarv con- 



RAPIDITY OF EXCHANGES. 183 

sumption will soon reduce the quantity in market, and 
rather than sell at a reduced profit, he will wait for the 
change of price. On the contrary, if an article of luxury 
be scarce, men begin to abandon it, and thus the demand 
is quickly reduced. If it be abundant, the number of 
purchasers does not increase with the supply, because 
men have not yet learned to use it ; hence, its fall in 
price is rapid, being not sustained by a correspondent 
increase of demand. 

These, I think, are the principal circumstances which 
enter into the exchangeable value of products. They 
are variously combined and modified, so that they may 
sometimes counteract, and sometimes exaggerate each 
other. But, I think, that, by applying them to the actual 
occurrences of life, we may generally be able to explain 
the fluctuations of price, which are daily taking place in 
the market. - 

II. Whe7i an article of produce is offered for exchange, 
the producer has conferred upon it his last value, and it 
is now ready for the consumer. 

By the consumer, here, I do not mean him only who 
gratifies his desire by the ultimate destruction of the pro- 
duct, but also him who receives it for the purpose of 
giving to it some other modification. The exchanger 
. confers upon it no new value. It is the same when it 
passes out of his hands to the consumer, as when it came 
into his hands from the producer : that is, in general, ex- 
change confers no value at all upon products ; since they 
receive no modification by passing from the hands of one 
person to those of another. 

1. Hence it will be seen, that the more rapidly ex- 
changes are made, the better. The more rapidly they 



184 DIFFERENCES OF PROFIT. 

are made, the less is the loss of interest, and the smaller 
the advance which the exchanger must charge for his 
labor. If a merchant purchase to-day a thousand dollars' 
worth of iron, which he sells to-morrow, he charges for 
his labor and skill, and adds only the interest of one day 
upon his capital. If he must keep the iron a whole year 
before he sell it, he must also charge the interest of a 
whole year, or else he will be the loser by his operation. 

Nor is this all. If he sell his iron to-morrow, he may 
invest the same sum in iron, and sell it again fifty times 
in the course of the year ; and thus receive a profit fifty 
times a year upon the use of his skill and labor, while, in 
the other case, he receives this profit but once. Hence, 
when exchanges are rapid, he can afford to exchange at 
a less rate for his labor and skill, than when they are 
slow. And hence, brisk exchanges are for the benefit of 
both buyer and seller ; and a benefit to the one, is a benefit 
to all. It is for this reason, among others, that we can 
frequently purchase at a cheaper rate in a large city, than 
in a country town. 

2. And hence we see a reason, why the profit upon one 
operation in some kinds of exchange, is greater than 
that in others. The profits of the wholesale merchant 
are, for instance, greater than those of the retail merchant. 
He who sends his capital to the East Indies, and receives 
in return, a load of teas, must charge interest and risk, for 
the whole time consumed, from the day that he parts with 
his property, until the day that he receives it again. This 
may be nearly two years. The retail merchant, who pur- 
chases one of those chests of tea, may sell it all in a week, 
and thus invest it fifty times in the course of a year. Now, 
if the profit on exchange, were as great in the one case as 
in the other, the gains of the retail merchant would be 
exorbitant. These are reduced, by competition, to the 



DIFFERENCES OF PROFIT. 185 

average level ; and hence, his gains on any single opera- 
tion are much less than those of the wholesale merchant. 
The same principle applies to production. The greater 
the time consumed in an operation, the larger the profit 
on each article which justly belongs to the producer. 

But, though the act of exchange add nothing, either 
to the intrinsic or the exchangeable value of the com- 
modity, it adds greatly to the convenience both of the 
buyer and the seller ; inasmuch as it enables both to 
gratify a desire, which, otherwise, would have been un- 
satisfied. If I want a pen-knife more than I want a dol- 
lar, and a hardware merchant wants a dollar more than 
he wants a pen-knife, we make the exchange with each 
other. The dollar is the same as before ; it will buy no 
more in his hands, than it will in mine. The pen-knife 
is the same as before ; it has neither gained nor lost ; and 
I might, if I chose, exchange it with, the next man I met, 
for a dollar. But, both the merchant and myself are 
benefitted by the exchange. I can use the knife for pur- 
poses for which I could not use the dollar ; and thus ren- 
der my labor per day much more valuable. The merchant 
has received a full remuneration for his labor, capital and 
skill, and is, by so much, richer than he was before. That 
both of us have been benefitted by the exchange, is evi- 
dent from the fact, that neither of us would make the 
exchange back again. If a hungry man have a piece of 
silver, and a baker have a loaf of bread, they will readily 
exchange with each other. The silver is the same, and 
the loaf is the same, as before ; but still, both parties are 
richer and happier; and neither would the hungry man 
take back the same piece of silver for his loaf ; nor would 
the baker take back the loaf for the silver. 

The case is the same with nations, if a nation ex- 
change iron, of which it has more than it can consume, 
24 



186 DIFFERENCES OF PROFIT. 

for wheat, of which it does not raise enough for con- 
sumption, with a nation which has more Avheat than ii 
can consume, but produces no iron ; the wheat and the 
iron are the same as before ; but each nation is richer 
and happier ; each has one more desire gratified than be- 
fore, and is able, the next year, to increase more largely 
its stock of production. That both are happier than 
before, is evident ; because neither would reverse the ex- 
change, if it were in its power. And thus, in general, 
whenever two nations mutually wish to exchange their 
productions with each other, and are mutually gratified 
when the exchange is made, it is evident that both are 
made happier, and that the exchange has been advan- 
tageous to both parties. 

Hence Ave see, how fallacious is the notion formerly 
entertained, that, by exchange, only one party is bene- 
fitted ; and consequently, that what one party gains, the 
other party loses. Were this the case, no country could 
grow rich by exchange, unless by impoverishing every 
other country ; and the gain of one nation, would be 
nothing else than a transfer of the wealth of other coun- 
tries to itself. On the contrary, precisely the reverse is 
the case. The most favorable commerce to any one 
country, is that, by which the riches of both countries 
are the most rapidly increased. A merchant, whose gains 
were all derived from the impoverishment of his custom- 
ers, would very soon have none but paupers for neighbors. 
A nation, whose traffic caused the impoverishment of 
another nation, would very soon be obliged to discon- 
tinue commerce. The only traffic of this sort, is the 
African slave trade, and the result has been the almost 
entire depopulation of the slave coast. And thus, we 
see, in political economy, as in morals, every benefit is 
mutual ; and we cannot, in the one case, any more than 
in- the other, really do good to ourselves, without doing 



CONDITIONS OF EXCHANGE. 187 

good others ; nor do good to others, without also doing 
good to ourselves. 

In what I have said of exchange, it is to be observed 
that I have spoken of exchange simply, and not as com- 
bined with the labor of transportation. The labor of 
transportation gives an additional value to an article ; 
that is, it confers upon it change of place. This has 
been already spoken of. It is true, a merchant frequently 
performs this labor, or causes it to be performed. In this 
case, he is entitled to a double profit ; first, for the labor 
of transportation, and secondly, for the labor and skill of 
exchange. He who labors in either of these employments, 
is entitled to the profit of that in which he labors ; and, he 
who labors in both, is entitled to the profit of both. In 
speaking of the profit of exchange, it is always to be 
observed, that the profit of the merchant is derived 
partly from his labor and skill, and partly from his capi- 
tal. He who exports to France one hundred thousand 
dollars' worth of cotton, must first buy the cotton ; that 
is, he must have one hundred thousand dollars to invest in 
this exchange. He exchanges the cotton for silks or for 
calicoes, and replaces his first investment. He is entitled 
to interest and risk on that capital, for all the time that it 
is out of his hands, besides the remuneration for his labor 
and skill. 

III. Of the conditions 07i ivhich the frequency or in- 
frequency of exchanges depends. 

It is manifest that the more numerous are the exchanges, 
the better must it be for a community. As no one ex- 
changes, except to gratify his desires, and to improve his 
condition, the more numerous the exchanges, the more 
desires will be gratified, and the more universally will 
the condition of a people be improved. It is also evident, 



188 CONDITIONS OF EXCHANGE. 

that facility of exchange is one of the greatest stimulants 
to production. If a man cannot transform his products 
into what he desires, he will labor for nothing but the 
mere necessaries of life. But in just so far as he is able, 
by exchanging the products of his labor, to procure objects 
of desire, his motives to industry will be quickened. And 
the same is true of nations. Every one, whether poet, or 
philosopher, or traveller, in setting forth the prosperity of 
a^country, has described its harbors thronged with ships, 
its roads covered with merchandise, cind its sails whiten- 
ing every ocean. But all these are only so many forms 
of expressing the general fact, that a nation's exchanges, 
both internal and external, are abundant and prosperous ; 
that is, that its producers are able, by their own labor, 
easily to avail themselves of every other production which 
they may desire. 

We have said that exchange is a voluntary and mutual 
transfer of the right of property. 

If this be the case, there must exist, in each party, 

1. A mutual desire for the property of the other, greater 
than the desire for his own. 

2. Mutual ability ; that is, each party must be able to 
offer to the other, such a consideration as will induce him 
to make the exchange. 

Where both of these exist, exchanges will, of course, 
take place. If A have a dollar which he wishes to part 
with for B's knife, and B has a knife which he wishes to 
part with for A's dollar ; as soon as each knows the wish 
of the other, they will mutually gratify each other, and 
the exchange will take place. 



CONDITIONS OF EXCHANGE. ISO 

3. As, however, the right of property alone is frequently 
transferred, while the property itself is not delivered at the 
time of the exchange, there is always, in every such act of 
exchange, a liability to fraud. Besides, a commodity may 
not prove to be as good as it was represented, or the owner's 
title may not be satisfactory. In all such cases, there is 
an opportunity for the practice of dishonesty ; and the 
risk of suffering from such dishonesty, would, of course, 
diminish the frequency of exchanges. Hence, frequency 
of exchanges will depend upon security of the right of 
property, and the existence of the means for enforcing 
that right. 

If we now reflect upon these facts, I think we must per- 
ceive, that the desires of a people for exchange, will depend, 
principally, upon their intelligence. Their ability will de- 
pend upon the productiveness of their labor and capital; 
and the security of property will depend upon their indi- 
vidual and social morality. That is, exchanges will be 
frequent, in proportion to the intelligence, wealth, and 
moral character of a people. 

1. Exchanges will be frequent or unfrequent, in pro- 
portion to the intelligence or ignorance of a people. It 
is only by the diffusion of knowledge that men ascertain 
how their desires may be gratified. It is by knowledge 
that the desires of man are brought into relation with the 
objects intended by his Creator for their gratification. 
Every one knows how the dormant desire for exchange 
is awakened in the bosom of a child, the moment he 
enters a toy shop. I suppose that strangers rarely pass 
through the streets of a large city, without being strongly, 
if not successfully, tempted to lighten their pockets, before 
the termination of their journey. Every reader knows, 
how strongly his desire for books is enkindled, by passing 
a few minutes in a book store. And thus we see. how 



190 CONDITIONS OF EXCHANGE. 

instantaneously a desire for exchange arises in the breasts 
of savages, as soon as they are brought into contact with 
civilized man. A multitude of objects for the gratifica- 
tion of desire, of which they were before ignorant, is set 
before them ; and they are frequently stimulated to ex- 
change, to their own disadvantage. The early voyagers 
give us striking illustrations of this fact. They represent 
themselves as overwhelmed with these rude people offer- 
ing every thing which they supposed their visiters would 
desire, for nails, beads, pieces of looking-glass, iron hoops, 
and almost every thing on which they could lay their 
hands. • 

When, however, I speak of intellectual cultivation in 
this connection, it is to be understood that I by no means 
refer exclusively to the knowledge and mental discipline 
which is acquired by the reading of books. Books, though 
essential to the intellectual progress of a country, are only 
one means of introducing and circulating knowledge. 
Knowledge is gained by observation, and by conversa- 
tion ; and it is, if I may say so, absorbed from the intel- 
lectual atmosphere which we breathe ; it is derived from 
the general spirit of the community in which we live. 
Thus, a man rarely goes from home into another country, 
or into another section of the same country, without 
obtaining a knowledge of various conveniences of which 
he was before ignorant. Familiar intercourse between 
men of different pursuits, conduces to the same result. 
Newspapers, filled with advertisements, circulated over 
every district of a country, have, in this respect, a power- 
ful effect. All these causes combine to show every indi- 
vidual what he can produce which other merx want, and 
how he may, by exchange, procure from them what he 
wants himself 

We see all this illustrated, in every district separated 



CONDITIONS OF EXCHANGE, 191 

by nature from the surrounding country, as a valley 
inclosed by mountains difficult of access, or an island 
which has but rare communication with the main land. 
The progress of such a population in the arts, and in pos- 
sessing themselves of the conveniences of life, is always 
much less rapid than than that of their more highly 
favored neighbors. They know but little of what is 
going on around them, and their desires are but feebly 
stimulated to improve their condition. The state of such 
a population is always suddenly and rapidly improved, 
by any means of easy communication with their neigh- 
bors. They are stimulated at once to develope their own 
resources, and thus to share in the benefits enjoyed by 
those around them. Thus the Pastor Oberlin, a truly 
great and good man, when he wished to improve the con- 
dition of the Ban de la Roche, commenced by inducing 
his people to repair their roads. Hence we see, how im- 
portant, in this respect, to a nation, are all means of inter- 
nal communication, and the facilities for the universal 
circulation of the commonest forms of knowledge. 

2. Exchanges will be numerous, in proportion to the 
productiveness of a country. 

We have already seen, that simple desire, in both par- 
ties, is not sufficient to effect exchanges. Each party 
must both possess, and be willing to part with, so large a 
portion of the product desired by the other party, that the 
other is willing to make the desired exchange. Every man 
desires a horse and carriage, and every man who either 
raises horses or manufactures carriages, is willing to part 
with them for an equivalent. But until every man have 
something to offer for a horse and carriage, which will be 
sufficient to induce the other parties to make the exchange^ 
every one cannot be so accommodated. If A have wheat 
which he is willing to exchange for rye, but if B either 



192 CONDITIONS OF EXCHANGE. 

have no rye which he is able to offer in exchange, or 
have it not in sufficient quantity to remunerate the labor 
of A, no exchange can take place. But if both have been 
prospered, and each have enough of his own product for 
his own use, and is also able to offer, on fair terms, a por- 
tion in exchange, they may then exchange with advan- 
tage, and, of course, they will do so. 

Or, again : If A and B have only so much surplus pro- 
duct as will enable them to make this one exchange with 
each other, much as they may desire the product of C and 
D, these last desires must be ungratified ; since no further 
exchange can take place. Or, on the contrary, if A and B 
have abundance, but C and Dhave been unfortunate, and 
have nothing which they can part with, the same result 
will take place. But let A, B, C and D be all blessed 
with abundance, and all have surplus ]5roducts which they 
are willing to exchange with each other, and in such pro- 
portions as will reward each other's industry ; and they 
will all exchange accordingly. And hence we see, that 
exchanges must ahvays be most numerous, in the most 
prosperous condition of a country ; or, as every one knows, 
mercantile business is most prosperous, that is, exchanges 
are most abundant, when manufacturing, agricultural, and 
all other kinds of industry are most productive. 

And we see, moreover, that this principle is of univer- 
sal application. A good harvest in one country, is a 
benefit to every other country ; because the favored 
country desires a larger amount of the productions of her 
neighbors, and has a larger fund wherewith to pay for 
them. Hence, the exchanges between such a country 
and every other country, are increased. On the contrary, 
a famine, or a war, or any other calamity happening to 
one country, is a calamity to every other country, because" 
the unfortunate country wants less of the productions of 



CONDITIONS OF EXCHANGE. 193 

its neighbors; since it has less wherewith to pay for them. 
Its exchanges, therefore, are of necessity diminished. 
Hence, that merchant is short-sighted, as well as morally 
thoughtless, who expects to grow rich by short crops, civil 
dissensions, calamity, or war, in the country with which 
he traffics. A wiser and farther-sighted reflection, would 
teach him that it is very difficult to grow rich by trading 
with beggars, and that the benefit of one is always the 
benefit of all. To illustrate all this by a single case, let 
us ask what Avould be the amount of exchanges eff'ected 
by the inhabitants of Great Britain, France, and the United 
States, either among themselves or with each other, if the 
productiveness of these several countries, were no greater 
than it was in the time of Julius Cassar. 

3. Exchanges will be numerous in proportion to the 
tnoral character of a people. 

1. Individual morality is highly favorable to exchange, 
inasmuch as it lessens the liability to fraud, and, of course, 
the risk to which exchanges are exposed. No one will, if 
he can avoid it, trade with a knave. In proportion to the 
prevalence of knavery, will be the disinclination to ex- 
change. 

2. On the general moral character of a people depend 
the equity of their laws, and, of course, the full enjoyment 
of the right of property. As has before been remarked, 
exchanges are not always completed at the nistant. One 
party frequently parts with his property to-day, on con- 
dition of receiving the property of his neighbor a month 
hence. Here is a liability to fraud. Unless the one party 
have, by means of just and equitable law, the power of 
enforcing contracts, exchanges will be greatly restricted^ 



25 



194 CONDITIONS OF EXCHANGE. 

3. On the morality and intelligence- of a people , will 
greatly depend the freedom of its civil constitution; that is, 
the accuracy with which it limits the power of the society, 
that is, of the government, over the person and property 
of the individual. When these are improperly understood, 
or insufficiently guarded, the property of the citizen is 
liable to suffer from the avarice or oppression of rulers. 
To this evil, property, undergoing exchange, is specially 
liable. Exchange exposes to the view of the public, the 
possessions of the parties, and, of course, enables a tyrant 
to seize upon them with the greater certainty. For this 
reason, exchanges are frequently, under bad governments, 
made_^in secret ; and, for this reason, under such a govern- 
ment, they are always as few as possible, and at great 
expense to the consumer. 

Hence we see, in general, that the frequency of ex- 
changes will be in proportion to the wealth, and to the 
intellectual and moral character of a people. And since, 
as the progress of a nation, in these respects, will promote 
her mercantile prosperity, we may easily see what will 
depress it. The frequency of exchanges will diminish, 
as a nation decreases in intelligence and virtue. Of the 
truth of this remark, all history is filled with illustrations. 
After what has already been said, it will not be necessary 
to enlarge upon this topic. These effects, moreover, are 
principally to be observed, by comparing the condition 
of a country at long periods ; and tracing the effects of 
measures and events in those directions which are not 
always obvious to every observer. 

While, however, the government and laws of a country 
remain the same, there frequently occurs a temporary 
diminution of exchanges, which is denominated a stagna- 
tion of business. This deserves to be noticed. As the 
business of a merchant is to execute exchanges ; that is. 



STAGNATION OF BUSINESS. 195 

to perform the labor of exchanging, for those who wish to 
exchange their products, a stagnation of mercantile busi- 
ness must occur, when there is less of this operation to be 
performed ; that is, he is ready to perform the exchange, 
but a less number of persons desire it to be performed. 

The reason why the merchant feels this more seriously 
than any other man, is obvious. All his capital is invested 
in this kind of operation. He buys of one party, that is, 
invests his capital in one kind of product, and sells to an- 
other, that is, receives his product in exchange, and he sup- 
ports himself by the profit of these two operations. The 
moment exchanges cease, his means of support are dried 
up ; for he is supported only by making them. He can 
buy, but he cannot sell. Hence there arises, as it is called, 
a stagnation of business ; that is, a cessation or diminution 
of exchanges. The principal causes of this, are the fol- 
lowing : 

1. It may arise from a diminished desire for a particu- 
lar product. Thus the decrease of the Catholic religion, 
during the wars of the French revolution, diminished the 
desire for fish, which the Catholics eat in Lent, and on 
fast days. This produced a stagnation of business in the 
fish trade. 

It may arise from change of fashion. Thus, when 
shoe-strings were substituted for shoe-buckles, the de- 
mand for shoe-buckles ceased ; the manufacturers of shoe- 
buckles were thrown out of employment ; and there was 
a stagnation of business in this kind of trade. 

It may arise from the fact, that one particular product 
has been supplanted by another. Thus the increasing 
cheapness of cotton cloth; has materially diminished the 
demand for linen. 



196 STAGNATION OF BUSINESS. 

Whenever, from any cause, the desires of men change, 
then the traffic in the article neglected, must be diminished; 
since it is very difficult to sell to a man a commodity which 
he knows he does not want. To this disadvantage, all 
articles which derive their value from fashion and caprice 
are exposed ; and, on this account, they are always sold 
at a higher profit, in order to compensate for the additional 
risk. 

2. Stagnation in business may arise from a failure iti 
production. This must, of necessity, produce it ; since, as 
we have already seen, two men cannot exchange, unless 
they both have something to part with ; and the amount 
and number of every man's exchanges will be in propor- 
tion to the amount which he is able to part with, and the 
amount which others are able to offer him in exchange. 
Thus, if the crop of sugar should be reduced one half, 
there would be a stagnation in the sugar business ; that is, 
there would be but half the quantity of sugar to be ex- 
changed, and half the quantity of other things to be 
exchanged for it ; in other words, half the number or 
amount of exchanges would be made. And, in general, 
the failure of any crop, or the diminution of any kind of 
production, must cause a stagnation of business in the 
traffic in that article itself, and also of whatever is usually 
exchanged for it. Thus, also, if production languish from 
civil war, or from insecurity of property, exchanges of all 
kinds diminish, towns are depopulated, harbors are de- 
serted, and the accumulated treasure of past generations 
insensibly melts away. 

A partial glut, or stagnation of business, may also arise 
from poverty in one of the parties making the exchange. 
If a nation is able to produce but one hundred thousand 
dollars' worth of exports, it can purchase but one hundred 
thousand dollars' worth of imports. This, then, will 



STAGNATION OP^ BUSINESS. 197 

generally be the annual amount that will be brought to 
its market. But if, from any cause, a larger amount, say 
one hundred and fifty thousand dollars' worth, is brought 
thither, there will arise a glut, or temporary stagnation 
of business. There will be fifty thousand dollars' worth 
more than can be exchanged. The reason is not, that 
they do not want the additional fifty thousand dollars' 
worth of the productions of other countries, but that they 
have nothing with which to purchase it. Hence, after 
one hundred thousand dollars' worth have been purchased, 
there will be sellers, but no buyers. It will be seen, 
however, that such a case can generally exist only in 
new, small, or in very unproductive countries, or for short 
periods ; or else in respect to articles of which the con- 
sumption of the whole community is but small. 

3. A stagnation of business may be the effects of legisla- 
tion. Suppose the importation of coffee into this country 
be a million pounds per annum. This must be paid for, 
in some way, by the productions of our own industry ; 
and the demand for those productions to this extent, is 
for the sole purpose of paying for this coffee. There must, 
of course, be a great variety of exchanges required to col- 
lect these products, to bring them to the sea ports, to 
exchange them for coffee, and again to circulate this coffee 
throughout the country. Now, let a duty be laid upon 
coffee, which shall double its price, and thus diminish its 
consumption one half. The demand for one half of the 
products by which it was paid for, ceases, the demand for 
coffee, to this extent, also ceases ; and the labor of trans- 
portation on both articles is reduced one half. Here must 
be a stagnation of business, in both of these articles ; and 
half the shipping thus employed, will, for a time, be use- 
less. Hence, there must, of course, arise a stagnation of 
business ; that is, a permanent diminution of exchanges, 
in all the departments of industry affected by this arrange- 
ment. 



198 LEGISLATIVE ENACTMENTS. 

ly. Of the effects of legislative enactments on Ex- 
change. 

I think it too obvious to need remark, that duties on 
imports can have no favorable effect on exchange. Their 
only effect must be, to raise the price of the products, and, 
of course, to diminish the ability in both parties to ex- 
change. Every one knows thai the exchanges between 
two places are diminished, by any natural obstacle to 
communication. If a road were so bad that it cost five 
dollars per hundred weight to transport merchandise 
between two places, every one knows that exchanges 
between these places would be fewer than they would 
be if the road were improved, so that transportation could 
be effected for twenty-five cents per hundred weight. 
Now, it makes no difference whether this additional four 
dollars and seventy-five cents be the result of the badness 
of the road, or of a transit duty between the two places. 
The diminution of exchange which it causes, will be pre- 
cisely the same. In a severe winter, our northern harbors 
are closed, for weeks or months, by the ice. This is a 
natural tariff, and imposes a large protecting duty, inas- 
much as exchanges must be effected, if they be eftected 
at all, at a vastly greater price than in summer. I sup- 
pose it is not generally believed that this has no effect on 
the number of exchanges ; and I have never heard it men- 
tioned, as specially favorable to domestic industry. 

I therefore think it evident, that governments can do 
nothing to facilitate exchanges by means of discriminating 
duties. They have, however, attempted to accomplish 
this result, by means of bounties on particular exports. 

The manner in which this is accomplished, is this. 
Suppose we were not able, profitably, to produce and 
offer to other nations in exchange, some particlai" article, 



LEGISLATIVE ENACTMENTS. 199 

say, for instance, iron. To encourage this export, a 
bounty is granted on every ton of iron exported, equal to 
the difference between our cost of producing it, and that 
at which other nations produce it. Our producer can 
then sell it in a foreign port, as cheap as the producer from 
another nation. But where does this bounty come from ? 
Why, it is from a duty laid on some other import, or else 
from a tax laid on some other product. The iron worker 
is no better off than any other man, and all the other 
exchangers or producers, or both, are just so much worse 
off ; and the value of capital and labor is, by the whole 
operation, diminished, as we have shown in the article on 
the effect of legislative enactments upon production. Did 
any merchant ever grow rich by selling under cost, for 
the sake of competition with his neighbor ? It would be 
very difficult to show how a nation can grow rich in the 
same way. But, as the principles on which this discus- 
sion depends, have been already treated of in the article 
above alluded to, I need not here repeat them. 

If, then, governments can do nothing in this manner ta 
promote the business of exchanges, in Avhat manner may 
exchange be affected by legislation ? 

We have said that exchanges are the natural result of 
mutual desire and mutual ability. In what manner may 
these be influenced by legislative enactments ? 

1. Of Desire. If by desire, be meant the original im- 
pulses implanted in the bosom of man, it is evident that 
these can be neither increased nor diminished. These 
are a fixed quantity, with which we cannot interfere. 
These desires, however, generally remain dormant, until 
they are awakened into exercise by the presence, or by 
the knowledge, of their appropriate objects. It is by a 
knowledge of the existence of these objects, therefore, 



200 LEGISLATIVE ENACTMENTS. 

and of the modes by which they may be obtained, that 
the desire for exchange is excited. Hence it is plain^ 
that the desire for exchange may be increased ; 

1. By the general diffusion of knowledge, especially of 
that sort of knowledge by which man is taught how he 
may benefit his condition. This will be accomplished, 
generally, by an universal diffusion of the means of com- 
mon education. 

2. By removing all impediments to the diffusion of 
knowledge. In this respect, duties on imported books, 
which is really a tax on knowledge, are, in a free govern-^ 
ment, absurdly injudicious. 

3. By increasing the physical means for the dissemi- 
nation of knowledge and intelligence. This will be done 
by allowing every facility for internal improvement ; by 
an efficient and cheap post-office system, pervading every 
portion of the country, and bringing to every man's door 
the information circulating throughout the civilized world. 

I do not know that a government can do more than this 
to excite in a people the desire to exchange. 

2. Of Ability. The ability to exchange depends, as- 
we have shown, upon productiveness. Hence, every 
means by which the productiveness of industry is in- 
creased, will also benefit exchange. These have already 
been alluded to, in the former book, and need not here to 
be repeated. 

There is, however, one branch of productive industry 
which is more immediately connected with exchange, 
than any other, and which deserves, on that account, in this 
place, a more minute consideration. I refer to internal 
improvements. On this, T shall offer a few remarks. 



INTERNAL IMPROVEMENTS. 201 

An internal improvement, is any means by which the 
operation of change in place may be performed at a less 
expense than formerly. It is, in fact, a labor-saving 
machine, peculiar to this branch of industry. Of those 
at present in use, the most common are roads, railways, 
and canals. 

What is peculiar to these machines, is. First, they 
are very costly, and hence, in general, require more capi- 
tal than can be commanded by a single individual ; 
and, therefore, must be owned by a number of persons 
associated together. Secondly : they must pass through 
the lands of various individuals who have no special 
interest in them, and are thus liable to interfere with the 
right of property. This interference can be allowed only 
by the whole community ] and, hence, there arises a 
necessity for legislative enactment, granting permission 
to this effect. 

Now, inasmuch as such machines, if properly con- 
structed and skilfully managed, are greatly for the benefit 
of the whole society, it is manifestly the duty of society 
to grant all suitable facilities for constructing them. Inas- 
much, however, as they, like any other privileges, are 
liable to be abused, and may, in the end, injure the inter- 
ests which they were intended to benefit, it becomes a 
legislature, on all such occasions, to reserve, at the outset, 
the right of visitation ; and the power to modify or amend, 
on equitable terms, the privileges granted, in such manner 
as the exigencies of the public may require. 

Whether a government should itself undertake the work 
of internal improvement, is, however, not so clear. On 
this subject, it may be suggested : 



26 



202 INTERNAL IMPROVEMENTS. 

1. If it luill 7iot be profitable : that is, if capital thus 
invested will not be as productive as that invested in 
other employments, it ought not to be undertaken by the 
public, because the capital thus invested must be taken 
from other employments ; that is, it must be taken by 
force from a more productive, to be invested in a less 
productive employment. If it be said, though it be not 
itself productive, it may enrich the district in which 
it is constructed ; the answer to this is, then let that dis- 
trict pay for it, unless it can be shown to be either wise 
or just, to impoverish one district, for the purpose of 
enriching another. 

2. If it will be productive, private associations, in an in- 
telligent community, will, with proper encouragement, be 
ready to undertake it. And of the question of profitable-' 
ness, private individuals will judge much more accurately 
than a government, because the facts are equally known to 
both ; the degree of intelligence is likely to be as great in 
the one case, as in the other ; and the one party can be in- 
fluenced by no motive but self-interest, which is here also 
the interest of the public ; while the other party may be 
influenced by party politics, sectional jealousy, love of 
power, and a thousand disturbing causes. 

3. A work of this sort will be executed at much less 
expense by private individuals, than by a government. 
The costliness of all public works, is every where pro- 
verbial. The greater the number of intermediate agen- 
cies by which any work is performed, the more imper- 
fectly is the work done, and the greater is the unnecessary 
expenditure. Now, government is itself an agent. It 
must perform the work by means of another set of agents. 
Under these, may be half a dozen others, in the form of 
contractors and sub-contractors. All these unnecessary 
agencies must be paid out of the public purse, and their 



EXTERNAL IMPROVEMENTS. 203 

accounts adjusted by those who have no special motive 
to encourage economy. All this is reversed, when those 
who conduct the work pay for it themselves, and whose 
profits, in the end, must depend upon the goodness of the 
work and the cheapness of its execution. 

4. A work of this kind will be more faithfully superin- 
tended by private, than by public owners. The private 
owner knows that he must conduct his operation economi- 
cally, and maintain the favor of the public, or else he will 
gain nothing by his investment. A government is under 
no such salutary check. 

5. But a still stronger objection to the confiding of such 
works to the public, is, the amount of patronage which it 
must, of necessity, place in the hands of a government. 
The power to make roads and canals whenever it pleased, 
and to employ upon them whomsoever it pleased, once 
placed in the hands of a party, would perpetuate it in 
office forever, in spite of any violation of right which it 
might perpetrate, or any corruption of which it might be 
guilty. This, of itself, seems to me a sufficient reason for 
declining to confide this power in the hands of any govern- 
ment. 

There is, however, another class of improvements, of 
very great importance, which belongs, of necessity and of 
right, to a government ; it is that class of improvemenis 
which reduce the expense, and lessen the risk of external 
commerce. Among these, the most important are the re- 
moval of obstructions from harbors ; the location of buoys 
and the erection of lighthouses ; the execution of accurate 
surveys ; and the publication of accurate charts of its 
whole coast. The more perfect these become, the less is the 
risk of shipwreck, in leaving and approaching a coast ; of 
course, the less is the cost of insurance, and the less the 



204 TREATMENT OF FOREIGNERS. 

price of every thing imported and exported. Hence, a na- 
tion offering these advantages, becomes abetter market for 
all other nations, and they will the more readily resort to 
her for exchanges. Improvements of this sort are one of the 
most economical forms of national investment ; they fre- 
quently save, in a single year, the whole cost of their 
erection. The loss of property and life, by shipAvreck, 
on almost every coast, is enormously great. The greater 
part of this loss might probably be saved, by judicious 
expenditure upon improvements on the coast, and proper 
regulations for the government of pilots. 

I have said, above, that exchanges will be effected by 
the security or insecurity of the right of property. Hence, 
legislators can do much to promote the prosperity of a 
country, by the enactment of wholesome laws, by which 
contracts shall be enforced, wrongs redressed, and injuries 
prevented. And they should be specially careful that 
they are not guilty, in their social character, of what they 
forbid to others in their individual character. They should 
be scrupulous in the observance of individual right, and 
should remember, that a single individual is as important 
as a nation, when the question of justice is concerned. 

And the same principles apply to the treatment of for- 
eigners. No foreigner can traffic with another country, 
without placing his property in the power of the citizens 
of that country. If his rights be respected, and he be 
assured of the benefit of equal laws, he will invest his 
property abroad as freely as at home ; and will, with con- 
fidence, and on the most moderate terms, effect exchanges 
to as great an extent as he is able. Hence, under these 
circumstances, exchanges will be effected to the greatest 
advantage of both countries, and they will naturally flow 
from other countries to such an one as this. And the 
reverse will be the case, if the rights of foreigners are 



TREATMENT OF FOREIGNERS. 205 

disregarded. Other nations will desire their custom, if 
we do not. Commerce will leave onr shores, and we 
shall be left in the well-known condition of the dog in 
the manger. The fable, I believe, informs us that he 
was starved to death. 



CHAPTER SECOND. 

OF EXCHANGE BY MEANS OF A METALLIC CURRENCY. 



SECTION I. 

OF THE USE OF A CIRCULATING MEBIUM. 

In the preceding chapter, I have endeavored to illustrate 
the general principles of exchange, and the conditions by 
which it is regulated. Exchange, however, like every 
other benefit which we enjoy in this life, can only be 
accomplished by labor. But in this, as in every other 
case, it holds true, that a great advantage is gained by 
increasing the productiveness of labor ; that is, by en- 
abling the same individuals by the same labor, to accom- 
plish a greater amount of exchange. And it holds true 
in this, as in other cases, that the result of labor is more 
perfect, just in proportion as the productiveness of labor 
is increased. 

But, in order to accomplish this, an intermediate instru- 
ment or tool must be used. A man who cannot split a 
log by the direct use of his hands, will find no difliculty 
in splitting it with a beetle and wedges. So, also, he who 
would find it impossible to efi'ect a dozen exchanges in a 
day, if he insisted on exchanging the products themselves, 
will find no difficulty in doing it in a few minutes, by 



DIFFICULTIES OF EXCHANGE IN KIND. 207 

means of the instrument which has been invented for 
this purpose, and he wih not only thus do it in a shorter 
time, but also on better terms, and with much greater 
exactitude. 

This instrument, of so much importance in exchange, 
is money ; to a consideration of the nature and uses of 
which, we shall devote this and the succeeding chapters. 
The present chapter will be confined to the consideration 
of a metallic currency. We commence with the use of a 
circulating medium. 

In treating of this subject, we shall jirst consider the 
difficulties which must necessarily embarrass exchange 
in kind ; and, secondly, the manner in which these diffi- 
culties are removed by means of a circulating medium. 

I. The difficulties lohich attend upon exchange in kind. 

By exchange in kind, I mean exchange of commodity 
for commodity, as when a farmer exchanges wheat for 
sugar, or pork for iron, &c. 

1. Suppose a producer to have prepared his product for 
consumption. If he be obliged to exchange in kind, it 
may be a long time before he finds another person who 
wants the article which he has created. If he be obliged 
to wait long, his product, if it be perishable, is either 
destroyed or deteriorated. He must go in search of a 
purchaser ; and, if he at length find one, he may have 
consumed, in the search, as much time as the article 
originally cost. This must be added to the cost of the 
article, or else he will be a loser. But, by this additional 
cost, the product is no better ; it is only dearer. This 
must, of course, decrease the demand ; and hence, by all 
this additional cost, both parties are poorer,. 



208 DIFFICULTIES OF EXCHANGE IN KIND. 

2. But it is to be remembered, that the producer not 
only wants to part with his product, but also to part Avith 
it for some definite object of desire. He who has raised 
wheat, does not wish simply to part with his wheat, but 
also to receive in exchange for it, tea, or coffee, or iron, 
or salt, or clothing. He must, therefore, in order to effect 
the exchange which he desires, not only find some one 
who wishes for wheat, but, also, some one who is able to 
give him, in return, the precise product he desires. If he 
desire clothing in return, it will not be sufficient to find 
some one who offers him bread, or shoes, or butcher's 
meat. This, also, increases the difficulty of exchange, 
and, of course, the labor and the cost necessary to effect it. 

3. But this is not all. Men who wish to exchange, 
do not always wish to exchange in equal amounts. A 
grazier who brings a fatted ox to market, may find per- 
sons enough who want a few pounds of beef, but very 
few who want a whole ox. The grazier cannot divide 
his ox, and give a part of it for a few pounds of coffee 
or tea ; nor, probably, does he require one fourth of the 
value of the ox, in any article which can be purchased In 
the town where it may be sold. He wishes to obtain, by 
the sale of the ox, additional provender for the support of 
his remaining herd. This he cannot, perhaps, procure, 
except in the country ; or, if he could procure it, the 
merchant who owns the provender, would not want a 
whole ox for butcher's meat. Thus, exchanges would 
be arrested ; or must be made very rarely, and at great cost, 
and under every possible disadvantage. 

4. Such are the difliculties which attend upon the ex- 
change of material products. But it will be manifest, at 

once, that material products give rise to but a small part 
of the exchanges which are, by necessity, made among 
men. One great article to be exchanged, is labor. This, 



DIFFICULTIES OF EXCHANGE IN KIND. 2Q[) 

every man produces, and must produce, by the law of his 
nature ; and this, every man is able to offer in exchange 
for the objects of desire. Now, were exchange only in 
kind, a man who had nothing but labor or skill to offer, 
would not be able to labor for those who ivanted him, 
and who would give him the greatest wages for labor ; but 
he must labor for those who were willing to give, in ever 
so small quantity, the articles which he needed for his 
support. The laborer in a furnace, would be obliged to 
take his pay in iron. But, as he could not exchange his 
iron with the baker, the butcher, or the clothier, he must 
go and work for them, for any compensation by which he 
might obtain for himself the necessaries of life. The 
workman of the baker must take his pay in bread. But 
he would want only a small portion of bread for himself, 
and he must spend his time in exchanging it for whatever 
else he needed. If he could not thus procure tea, coffee, 
clothing, and other necessaries, he must leave his occu- 
pation, and work for those who wished to exchange them 
for his labor. The physician must take his fee in iron, or 
bread, or butcher's rheat ; and, if any of his patients pro- 
duced what he did not want, he must either attend them 
gratuitously, or they must die without assistance. Besides 
this, there are many products incapable of division. If a 
hundred men engaged in building a ship, or a house, how 
vv^ould they take their pay in kind, without taking the ship 
in pieces, and thus rendering their work wholly useless? 

5. Hence we see, that were exchange only in kind, 
there would be no division of labor, except in its most 
imperfect form. No man could perfect himself in any one 
art ; because, by the exercise of that alone, he could not 
possibly procure the means of sustenance. I have already 
shown, how impossible it would be for him to do this by 
the practice of any one of the ordinary mechanical trades. 
How much more, when these trades are minutely sub- 

27 



210 UTILITY OF A CIRCULATING MEDIUM. 

divided. I have elsewhere stated the advantages of this 
subdivision. But how could this be effected, if exchange 
were made only in kind ? Suppose a man em.ploys 
his time in the single process of heading pins, or in form- 
ing the rivets for the handles of penknives ; how could he 
subsist by exchange in kind ? Who would give him what 
he needed for subsistence, for his pin-heads, or for his 
knife-handle rivets ? Hence, we see that division of labor, 
so essential to the productiveness of human industry, to 
the progress of society, and to the use of natural agents, 
could exist only in its most elementary forms, were ex- 
changes limited to exchange in kind. 

And, if it be said that this inconvenience could be 
avoided by establishments for barter, it will at once ap- 
pear, that these could remedy it only in part. They 
could assist in the exchange of nothing but material pro- 
ducts, and of those which were not rapidly perishable. 
They could present no relief for exchanges of labor. 
Hence, they would do almost nothing to facilitate division 
of labor, and could carry forward the progress of society 
in no respect beyond its most rude beginnings. 

From such causes as these, arises the necessity of a 
circulating medium ; and it will be easily seen, in what 
manner, by means of a circulating medium, they are 
remedied. 

1. Suppose that the producer can always exchange his 
product, not for the article which he immediately wants, 
but for some other article which is universally wanted, 
and wanted at all times, and in all quantities. As soon 
as the producer has, by exchange, possessed himself of 
this commodity, he may then, on account of its universal 
desirableness, easily procure, by another exchange, what- 
ever he may need. In this manner, by means of two 



UTILITY OF A CIRCULATING MEDIUM. 21 1 

exchanges made at the same instant, the labor of days or 
of weeks may be accomphshed. Thus, if salt were this 
commodity, and every one wanted salt in all quantities, 
at all times, and at a fixed value ; by exchanging every 
thing for salt, and then exchanging salt for whatever we 
might desire, the labor of exchanges would be vastly 
diminished. 

2. This convenience, however, will be much increased, 
if the article of universal desire be small in bulk ; because, 
in this case, much of the labor of transportation will be 
avoided. Were the lace-maker obliged to exchange his 
lace for salt, he Avould be obliged to furnish himself with 
a cart, in which to receive his payment. And thus, in 
general, instead of a purse, in which to carry our money, 
we should require, for this purpose, the use of a wagon 
and horses. 

3. If this circulating medium be also minutely divisible, 
it will possess still greater conveniences. The producer 
ma,y then part with all, or with a part of his product ; and 
he can procure, with the circulating medium, as small a 
portion of that which he wishes in exchange, as he may 
choose. The farmer, instead of exchanging one part of 
his wheat for tea, another part for coffee, and another part 
for clothing ; or else, exchanging it all for tea, and then 
endeavoring to find customers for his tea, may exchange 
it all for the circulating medium, procure as much of each 
as he pleases, or, if he choose, make no farther exchange 
whatever. 

4. The case is still stronger, when labor is one of the 
articles to be exchanged. The laborer will now no longer 
be obliged to labor at any price, for him who is able to give 
him in exchange what he immediately wants ; but he may 



212 UTILITY OF A CIRCULATING MEDIUM. 

labor for any one who will give him, in return, this object 
of general desire. Hence, he is now at liberty to labor for 
him who will give him the best wages ; that is, where his 
industry and skill will be employed most advantageously 
to himself. With this he can procure whatever he wants, 
in such portions as he may desire. 

5. The practicability of the division of labor now be- 
comes immediately apparent. If the laborer be paid in 
the article of universal desire, it makes no difference 
whether the person who produces what he wants, needs 
or does not need, his particular product. He wants the 
object of universal desire, and this is enough ; for, by this, 
the laborer can effect exchanges with him or with any one 
else. If he can procure this circulating medium by means 
of pin-heads, or knife-handle rivets, this is all that he 
wants. He is now as independent as though he pro- 
duced that which every one wants ; since, by means of 
what he produces, he can procure that which every one 
wants. Thus, we see, that every man is, in this manner, 
able to devote himself to that in which his skill will be 
most productive to himself. And all men thus making 
the first exchange in this object of universal desire, all 
are equally independent ; and all are able, in the most 
successful manner, to avail themselves of the fruits of 
their own industry. 

Now, whatever it is that performs the office of thus 
facilitating exchanges, is called a circulating medium. 
So great has been the necessity of some such instrument. 
that even the rudest nations have always been found 
adopting some such contrivance with advantage. 

Thus, the natives of the African coast were formerly 
in the habit of using, as money, small white sea-shells, 
denominated cowries. 



UTILITY OF A CIRCULATING MEDIUM. 213 

111 jDastoral nations, cattle were frequently used as a 
circulating medium. Thus we are told, by Homer, that 
the armor of Diomede cost nine oxen. Sheep, probably, 
were also used for the same purpose. The ordinary mode, 
among such nations, of estimating the wealth of an indi- 
vidual, was by the number of his flocks and herds. 
Hence, probably, arose the custom, among the Greeks 
and Romans, of stamping their earliest coin with the 
figure of an ox or a sheep. Hence, also, the Latin word 
pccunia, is supposed to be derived from pecus, a sheep. 

From reasons which will easily suggest themselves, all 
other substances soon gave place to the metals, as a circu- 
lating medium. Different metals were, however, used at 
first by different nations. The first instance on record 
of the use of metals, as a medium of exchange, is found 
in Genesis 23:16. "And Abraham hearkened unto 
Ephron. And Abraham loeighed to Ephron the silver 
which he had named, in the audience of the sons of Heth, 
four hundred shekels of silver, current money with the 
merchant." We see that at this time the money was 
weighed ; that is, was not paid by tale. I presume that 
the metals were used as a circulating medium for a long 
period before they were fashioned into coin. At a much 
later period, the baser metals were used as money by the 
Greeks and Romans. Thus the Lacedemonians, under 
Lycurgus, established iron as the circulating medium. 
The Romans used copper or brass in the early ages of 
their history. Hence, cbs signifies, in Latin, both brass 
and money. These, however, in all places, have long 
since given place to gold and silver, which are hence 
denominated the precious metals. These are now used 
for the purposes of money, throughout the known world, 
except among the rudest and most barbarous tribes. Cop- 
per is used only in the payment of sums less in value than 
the lowest denomination of silver coin. In some countries, 



214 QUALITIES OF A CIRCULATING MEDIUM. 

both'gold and silver are made a legal tender in payment 
of debts ; in other countries, only one of these metals is 
used. In this country, both are established by law. In 
Great Britain, gold is the only legal tender for all sums 
greater than twenty shillings, and silver, for all sums of 
less amount. Copper is used only in payment of sums 
less than six-pence. 



SECTION II. 

OF THE QUALITIES NECESSARY TO THAT WHICH CONSTITUTES 
THE CIRCULATING MEDIUM. 

In order to render any substance available as a circula- 
ting medium, the essential quahty required is, that it be 
universally desired as such. Its object is to facilitate 
exchanges, but it can accomplish this object, only by 
means of the willingness of the whole community to 
exchange for it every thing which they are willing to 
part v/ith. If one individual of a community prefer one 
substance, and another individual another, exchanges will 
be embarrassed, by unnecessary multiplication, and by 
the useless consumption of time. And if, on the other 
hand, any substance be thus universally desired, on ac- 
count of the great facilities which it offers, and the great 
saving of labor which it effects, it will be immediately 
used for this purpose. And it will be so used, without 
any agency of government ; and even although a govern- 
ment did not exist ; just as a man will use any other 
instrument for increasing the productiveness of his labor 
as soon as he can procure it ; simply for the reason that 
it is for his advantage. 



QUALITIES OF A CIRCULATING MEDIUM. 215 

If the exchanges of a country were wholly internal, it 
would be sufficient that such a circulating medium were 
universally acceptable among themselves. Bat, inasmuch 
as every nation has important and extensive exchanges 
with other nations, it is an additional advantage to have 
the same substance used as a circulating medium by all. 
We have already seen, that that exchange is the most pro- 
fitable for a country, in which it exports what is rela- 
tively most abundant at home, and imports that which is 
relatively most wanted at home ; and imports it from that 
country in which, what it exports is most wanted, and 
what it imports is most abundant. Now, it is evident, that 
the circulating medium may be accumulated in any 
country, so that it shall be relatively lower in price than 
other commodities. Thus, the precious metals may be 
so abundant in this country, that a merchant can procure 
more iron in Russia by sending a gi^^en amount of silver, 
than by sending the flour which would here be equal in 
value to the silver. It is, therefore, for his advantage to 
send the silver, and it is equally for the advantage of his 
country. And, for the same reason, if in this country, 
there be a relative scarcity, it will be for the advantage of 
other nations, as well as for our advantage, that they 
should send silver in exchange for our products. In this 
manner, exchanges are made, of that which is least wanted 
by both parties, for that which is most wanted by both. 
This enables both parties to supply themselves at the 
lowest rates. 

Besides, it is a great advantage, for the value of the cir- 
culating medium, in proportion to other values, to be as 
little as possible liable to fluctuation. The reason of this 
is plain. When once any substance is adopted as a cir- 
culating medium, all contracts are henceforth adjusted 
with reference to that substance. A man agrees to pay 
his neighbor a certain amount of value, not in cotton, of 



216 QUALITIES OF A CIRCULATING MEDIUM. 

coffee, or sugar, but in the circulating medium. Now, if 
this circulating medium be Uable to great fluctuation, the 
contract, though the same in words, will express a very 
different reality at different times. If 1 agree to pay six 
dollars a barrel for flour, three months hence, and if dol- 
lars be worth twice as much, that is, represent twice as 
much value, in three months as they do now ; though I 
pay what I promised in name, I pay twice the amount of 
value. If they have fallen to half the value, the seller 
will receive only half the value which he expected. This 
would be a great disadvantage, and would materially di- 
minish the utility of any substance when used for a cir- 
culating medium. But, if the same substance be used in 
all the civilized world, this fluctuation, if not absolutely 
prevented, will be so restricted, as to produce the least 
possible amount of evil. When exchanges between coun- 
tries are frequent and numerous, and the prices of all 
commodities are universally known by the merchants of 
both, as specie may be sent abroad with very little cost 
of transportation, a very slight advance in its relative 
value will cause it to flow in from other countries, and a 
very slight surplus will cause it to flow to other countries, 
until the common equilibrium be restored. In this man- 
ner, we see how the universal employment of the same 
substance, by all nations holding intercourse with each 
other, will be an advantage to all ; inasmuch as it will 
prevent any great fluctuation in its relative value in any 
particular country. 

While, however, it is the fact, that any thing which is 
thus universally acceptable will be used as money, there' 
are various circumstances on which this acceptableness 
depends. Some of these are the following : 

1. Its cost, or, in other words, the amount of labor neces- 
sary to its production, must be as invariable as possible.- 



QUALITIES OF A CIRCULATING MEDIUM. 217 

Hence, it could not be a Vegetable product, because the 
variations in the productiveness of labor thus employed 
are very great. An abundant harvest produces a rapid fall, 
and a dearth produces a rapid rise, in the price of wheat, 
which bears a large proportion to its average value. On 
this account, a metal is preferable ; because, here the 
amount produced, is directly and immediately dependent 
on the labor employed in producing it, and is less liable 
to be influenced by disturbing forces. 

2. It should be an article of high price ; that is, within 
a small bulk, it should concentrate a large amount of value, 
or represent a large amount of labor. This is, of course, 
a great advantage, by saving the labor of transportation. 
Every one sees that the commerce of the world, at its 
present state, must instantly cease, if we were obliged to 
exchange our gold and silver for the iron money of Lycur- 
gus. 

Yet, to this remark there is a limit. As a substance 
may not be of a price sufficiently high, so it may also be 
of a price too high for the purposes of money. Precious 
Stones are minerals, and they cost all the price at which 
they are sold ; but they are too dear to be used for this 
purpose ; that is, though they might answer for the ex- 
change of great values, yet, for all common exchanges, 
they would be utterly unsuitable, because they would be 
of so small bulk, as to be very easily lost. 

3. The substance must be capable of division, without 
loss of value. As it is desirable that provision be made 
for facilitating all sorts of exchanges, the substance used 
as money, should be capable of division into such portions 
as may suit the convenience of every one, without itself 
suffermg, by this division, any diminution of value. On 
this account, also, the precious stones would be unsuitable 

28 



218 QUALITIES OF A CIRCULATING MEDIUM. 

for this purpose, because their vahie is not proportional to 
their size. A large diamond is worth several times its 
weight of small diamonds. If it be divided, its value is 
very greatly diminished ; and having been once divided, 
its value can never be restored. On the contrary, a lump 
of gold may be divided into one hundred pieces, and the 
value of all the pieces together, is equal to the original 
value of the whole. They may, if occasion require, be 
again united into one lump, and the value of the whole 
is the same as before. 

4. The substance should be of such a nature, that it can 
be easily verified ,• that is, it should be susceptible of such 
preparation, that every one can readily assure himself of 
its purity and weight ; that is, of its value. Unless this 
can be done, at every exchange, every one must examine 
and try every piece by itself. This would consume much 
time, would require the possession of great skill in every 
individual, and would, by its frequent repetition, soon 
wear away the substance itself. Hence, it is of advan- 
tage that the metals used for money, should be peculiar 
in their weight and color, and that their appearance should 
attract attention, so that their peculiarities may be easily 
learned and distinguished. The brilliant lustre of silver 
and gold, therefore, adds very much to their fitness for 
coin. Their weight, also, presents a ready means for the 
detection of adulteration. Platina, which is used in Rus- 
sia for the purpose of money, has the advantage of both 
of them in weight ; but it has no lustre, and, in appear- 
ance, it very much resembles the baser metals. This will 
be an objection to its universal acceptableness. 

5. It should be, as little as possible, liable to fluctua- 
tions in value, either from decay, or from other causes. 
Were it easily destructible, great losses would constantly 
occur ; as the loss must fall upon the individual in whose 



QUALITIES OF A CIRCULATING MEDIUM. 219 

hands it happened at the time to be. And besides, were 
it from any cause hable to great fluctuation in vahie, it 
could never be used as a circulating medium. No one 
would contract to pay for a house, in a stated quantity of 
wheat, or in a stated quantity of iish, in twelve or eighteen 
months from a given time ; for he could not know how 
many causes might diminish the quantity of wheat, or 
vary the price of fish ; and, of course, he might be obliged 
to give twice as much as he expected. Could the circu- 
lating medium always bear the same relative price to other 
commodities, it would probably be advantageous. But as 
this is impossible, it is manifest, that that commodity 
which is liable to the least fluctuation, is, by this circum- 
stance, the best adapted to this pur^jose. 

6. As we sometimes desire to make small, and some- 
times large exchanges ; and, as the substance best adapted 
to the one, is not always best adapted to the other, there 
is an advantage in employing two metals for this purpose. 
For this reason, both silver and gold are commonly em- 
ployed in most civilized countries. For exchanges of 
less value than the smallest silver coin, copper is also 
generally used. And, if silver should ever become so 
abundant and cheap as to be too bulky to be used for 
eflecting small exchanges, it would take the place of 
copper, and its place would be supplied by gold. Should 
gold become as abundant as silver, it would take the place 
of silver, and some dearer metal, as platina, would be used 
in its stead. 

Inasmuch as gold and silver possess all the essential 
qualities which are required in a circulating medium ; 
and, as the condition of man so manifestly points to the 
necessity of some such instrument, it is not remarkable 
that they have so long and so universally been adopted 
for this purpose. But it is always to be remembered, 



220 QUALITIES OF A CIRCULATING MEDIUM. 

that we use them as a circulating medium, because we 
want a circulating medium, and because they accomplish 
the purpose. We do not use them as a circulating me- 
dium, because we see a stamp upon them, nor because 
government has made them a legal tender ; but because 
we know that they represent a given a7nount of value, 
and we therefore know, that we can exchange them for 
the same amount of value, whenever we please. If a 
bushel of wheat sell for a dollar, we know that it costs 
as much labor to produce a dollar at the mine and bring 
it to us, as to produce a bushel of wheat and bring it to 
us. Hence, we know that until some new and vastly 
more productive mines are discovered, this dollar cannot 
be produced for less labor, nor represent a less amount of 
value. And, as every body wants a dollar, and no one 
can furnish it at a less cost, we know that it will bring, 
in exchange, the same as we have given for it. 

We remarked, when speaking of exchangeable value, 
that the demand for any product, and, of course, its ex- 
changeable value, was affected by the number of desires 
it would gratify. The greater the number of desires 
which it will gratify, the greater the number of persons 
who will want it ; hence, they will overbid each other ; 
and, unless there be some improved, that is, cheaper 
method, of producing it, its exchangeable value will rise. 
This principle applies to whatever is used as money. 
The precious metals are used for ornament, for domestic 
utensils, and for coin. If the use of them for one of these 
purposes should be discontinued, the demand would be 
less ; and, as they are not liable to decay, their relative 
price would fall. 

Hence it is, that the amount of plate and utensils formed 
of the precious metals, in a country, is no criterion of its 
wealth, but, frequently, an indication of the reverse. 



OF THE FUNCTIONS OF MONEY. 221 

Should commerce be unproductive, and exchanges di- 
minish, and our intercourse with other nations be cut off, 
and we be reduced to the condition of Europe in the dark 
ages, there would be but little need of the precious metals 
as an instrument of exchange, and their price would fall. 
Hence, they Avould be melted down, by the rich, into 
plate. And, on the other hand, when they have been 
used for plate, and the demand for them, and their conse- 
quent price have, from any cause, subsequently increased, 
the temptation to use them, productively, is too great to 
allow them to be employed in this manner ; and the plate 
is melted into coin, and its place supplied with porcelain, 
or plated ware, or glass, or any other material of equal 
beauty, but of inferior costliness. 



SECTION III. 



OF THE FUNCTIONS OF MONEY. 



Let us now suppose metals to have been selected by 
the whole community as the circulating medium, and 
that they have been so divided and verified as to be fitted 
to accomplish this purpose. We shall proceed to consider 
some of the functions which these metals would dis- 
charge. 

Money is the instrument for facilitating exchanges. 
This, when considered as money, is its only office. By 
accomplishing this purpose in the least time, and at the 
least expense of labor, and transportation, and wear, it 



222 ^ OF THE FUNCTIONS OF xMONEY. 

reduces the cost of every product, and thus adds im- 
mensely to the productiveness of human industry. 

The principles on which it accomplishes this result, 
have been already alluded to. They are briefly as 
follows : 

1. The cost, or price of the money employed in every 
exchange, is equal to the cost or price of the article which 
is exchanged for it. If a barrel of flour in Lima be ex- 
changed for ten ounces of silver, the cost of producing 
the flour, and of transporting it to Lima, is equal to the 
cost of producing the silver and transporting it to the same 
place. If a barrel of flour in Is^ew York, be exchanged 
for seven ounces of silver, the cost and transportation of 
the one at the place of exchange, is equal to that of the 
other. If the flour merchant wishes for a thousand ounces 
of silver, he can procure it more cheaply by producing 
flour, than he can by going to the mines of Mexico, and 
working it out from the ere. And, if the miner wishes 
for flour, he can procure it more cheaply by Avorking in 
the mine, than by attempting to raise wheat and manu- 
facture flour on the mountains of Potosi. 

That this is so. is evident from the fact, that if the cost 
of the precious metals change, their exchangeable value 
varies, like that of any other product. Thus, if new and 
richer mines are opened, so that the cost of producing the 
precious metals is reduced, or, in other words, so that 
mining labor is more productive, the price of the precious 
metals falls. In such a case, we receive more silver for a 
day's work, for a bushel of wheat, for a pound of wool, or 
for any other product. Money is thus rendered cheaper, 
on the same principle that when a wheat harvest is abun- 
dant, we receive a larger amount of Avheat for a day's 
work, or for a pound of wool, than at other times. This 



OF THE FUNCTIONS OF MONEY. 223 

is exemplified, in the great change of prices which occur- 
red throughout the world, after the discovery of the mines 
of South America. And, on the other hand, when the 
price of producing the precious metals is increased, their 
exchangeable value rises. This has been the case, for 
some time past, in consequence of the civil wars of South 
America. Hence, there has been, for some time past, a 
gradual rise in the price of the precious metals ; that is, 
the price of other things has fallen ; that is, in gene- 
ral, if the cost of the production of the precious metals 
diminishes, while that of the production of wheat remains 
the same, we shall receive more silver in exchange for a 
bushel of wheat. If the cost of producing an ounce of 
silver is increased, while that of producing a bushel of 
wheat remains the same, we shall receive less silver in 
exchange for a bushel of wheat ; that is, in exchanging 
products for the precious metals, as for any thing else, we 
exchange on the principle of labor for labor. 

Besides, the price of the precious metals, like that of any 
other commodity, is influenced, in short periods, by the 
fluctuations of supply and demand. There is, in any 
country, the course of whose industry is not distorted by 
legislation, a supply of money, equal to the ordinary wants 
of the community, for the purposes of exchange. The 
price of both articles, is, in such a case, based upon the cost 
of the production of specie, compared with the cost of the 
production of the several articles for which it is ex- 
changed. But, suppose that while this amount of specie 
remains the same, there should happen a year of univer- 
sal productiveness in all the departments of agricultural, 
manufacturing, and commercial industry. In this case, 
the number of exchanges, and the amounts exchanged, 
would be proportionally increased. The instrument with 
which exchanges were to be made, would be relatively 
scarce ; the demand for it would rise ; and there would 



224 OP THE FUNCTIONS OF MONEY. 

be competition among the bidders for it. Hence, its' 
exchangeable vaUie would rise ; that is, we should give 
more wool, and wheat, and cotton, for an ounce of silver ; 
that is, every thing would be cheap ; or, in other words, 
for an ounce of silver, we should procure a larger amount 
of other products ; as we always do, in a season of uni- 
versal productiveness. And, on the contrary, if, while 
the ordinary amount of specie remained in the country, 
there occurred a very unproductive season, the number 
of exchanges would proportionally diminish, and there 
would be less demand for the instrument of exchange. 
There would arise a competition among the sellers, and 
the relative price of money would fall ; that is, we should 
give more money for every other article of necessity ; that 
is, every thing would be dear, as every one knows it is, 
in a season of scarcity. 

We see, then, that the exchangeable value of money, 
is not derived from its shape or color, from the stamp of 
the mint, or from the enactments of the government ; but 
that, like every thing else, it is based upon the cost of its 
production, varying, slightly, and for short periods, like 
every thing else, with the accidental fluctuations of sup- 
ply and demand. And hence, the reason why a man 
exchanges a bushel of wheat for two ounces of silver, 
and a yard of broadcloth for six ounces, is, that it costs 
as much labor and capital to produce the one at the place 
of exchange, as the other, and that no one can produce the 
given amount of silver, by mining, or in any other way, 
without expending the same amount of labor and capital, 
that the flour merchant or the manufacturer has expended 
in the creation of his products. 

As, then, every man, when he exchanges his products 
for the precious metals, knows that he receives a com- 
modity of as much cost ; that is, which represents the 



OF THE FUNCTIONS OF MON"EY. 225 

same amount of labor and capital, as that for which he 
exchanges it ; and, as he knows that every one wants this 
commodity ; that is, he can procure with it any thing 
which any one else has to exchange ; and, as no one who 
wants it, can procure it on any better terms from any one 
else than from himself, every one is willing to exchange 
for money, and would rather exchange for it than for any 
thing else. As this feeling is universal, every one acts 
upon the same principle ; and hence, all exchanges are 
either made in money, or else are regulated by it. 

Hence, we see again, the great importance of adopting, 
as a circulating medium, a commodity which is not liable 
to fluctuation. If I exchange a bale of cotton for a hun- 
dred ounces of silver to-day, when both the articles repre- 
sent the same amount of labor, I do it upon the supposition, 
that no one can furnish the silver, next week, on better 
terms than myself. But if, in a few days, the relative 
cost of silver should fall one half, every one would be 
able to furnish it at a less cost, and I should be under- 
bidden ; that is, I should be obliged to sell my silver at 
half price ; that is, for half the amount of labor which I 
gave for it. 

II. But the question will naturally arise, if the value of 
the silver be equal to that of all the amounts exchanged 
for it, must not the value of the precious metals in the 
community, be equal to the value of all the other com- 
modities ? 

We answer, this would be the case, if all exchanges 
were actually made in money, and actually made at the 
same instant. But the contrary is the fact. 

No man exchanges all his products at once, but ex- 
changes them in successive portions. If two men possess 

29 



236 OF THE FUNCTIONS OF MONEY. 

one thousand dollars' worth of commodities : for instance, 
if A have wool and B have wheat, and they exchange the 
whole at once, and use money as the instrument, they must 
both possess also one thousand dollars with which to make 
the exchange ; that is, A must give B one thousand dollars 
for his wool, and vice versa. But, if they exchange in por- 
tions of the value of ten dollars, at one hundred succes- 
sive times, ten dollars in the possession of each, and the 
same identical ten dollars, would accomplish the whole 
object. Now, as it is evident, that on any particular day, 
only a very small part of the whole amount of values in 
the possession of the community, is exchanged, it is evi- 
dent that only so much of the instrument of exchange is 
necessary, as will accomplish the exchanges which the 
convenience of the community requires. No one sup- 
poses, because there is a million tons of merchandise in a 
city, that there must have been vehicles capable of carry- 
ing a million tons at once in order to bring it there. A loco- 
motive, carrying fifty tons at once, if it went and returned 
frequently, would speedily accomplish the whole work. 

2. But this is not all. A large amount of exchanges is 
constantly made in kind. A buys wool of B, and B buys 
cloth of A. They both estimate the value of their pro- 
duct in money, because, as this is the usual medium of 
exchange, and that by which they are obliged to estimate 
cost, this method of estimation is most convenient. Each 
charges the other with all that he purchases, at its value in 
silver. At the close of the year, they adjust their accounts 
with each other. If A and B have both received of each 
other the same amount of value estimated in silver, the 
one account balances the other ; and thus, no money at 
all is required. If one have received more than the other, 
he pays merely the difference, either in silver, or else in 
his own product, at the option of his creditor. In this 
manner, a large proportion of the exchanges actually made,. 



OF THE FUNCTIONS OF MONEY. 227 

is conducted. In this manner, hook-keeping tends greatly 
to diminish the amount of the circulating medium neces- 
sary for the exchanges of a community. 

3. We see that this is still more emphatically the case, 
in respect to all the exchanges Avhich take place between 
different districts, and different nations. Inasmuch as no 
society can gain possession of the objects of desire, except 
b}^ its own labor, it must pay for what it receives in the 
product of the labor of others, with what it sends away, 
in the product of its own labor ; that is to say, the exports 
of any conntry must be substantially equal to its imports. 
If, then, the transactions between two nations should be 
precisely equal, there would be no need of the transmission 
of any money at all between them. If A send ten thou- 
sand dollars' worth of cotton to Liverpool, and import ten 
thousand dollars' worth of calicoes from Manchester ; he 
authorises the manufacturer in Manchester to receive in 
payment, the ten thousand dollars which are due to him 
from the merchant in Liverpool; and, thus, the whole 
matter is adjusted. If we receive from England, values 
to a larger amount than she wishes to receive in our own 
productions, we send some of our productions to a third 
country, and thus procure for England, what she wishes 
from the third country, in sufficient quantity to pay the 
residue. If we can get her products, in this manner, 
cheaper than we can make them ourselves, it is for our 
interest to do so. If they thus cost more than we could 
produce them for, ourselves, we shall relinquish the trade, 
and begin to manufacture them. In either case, there is 
no necessity for the use of money. And hence, the only 
reason why money is sent from one country to another, 
in the transactions of commerce, is the same reason as 
that for which tea, or coffee, or cotton, or flour, is sent ; 
that is, because it is so much cheaper in the country 
from which it is sent, than in that to which it is exported^ 



226 OF THE FUNCTIONS OF MONEY. 

that a larger value can be procured for it, than for the 
same value of any other commodity. In this case, it is 
for the advantage of both countries that it should be so 
exchanged. 

The amount of the circulating mediu.m, in any one 
country, and, of course, in all countries, must, therefore, 
be very small, in proportion to the whole amount of the 
capital of a country. The actual proportion, perhaps, 
cannot be estimated with accuracy. In Great Britain, 
writers on this subject have greatly varied. Some have 
estimated it at the 50th, and others, at the 127th part of 
the whole capital. The latter is, probably, by far the 
nearer to the truth. 

III. We see, then, that under given circumstances, in 
any country, a given amount of specie will be required 
to effect its exchanges ; and that, that amount will depend 
upon the relative value of the precious metals with other 
things, and upon the number and the facilities of ex- 
change. These latter circumstances remaining the same, 
the same value in specie will always be required, and no 
more. If specie, equal in value to ten millions bushels of 
wheat be required, no more m value can be used. If the 
amount be increased, its value will fall. If the ainou7it 
be diminished, its value will rise. And this rise and fall 
will equally take place, whether the relative variation arise 
from a change in the cost of specie or of other products. 
Now, it is easy to see that these variations, if left alone, 
will regulate themselves. 

We have seen, already, that the relative value of specie 
and of other products may vary. Let us suppose, in the 
first instance, that production, in any one year, is greatly 
increased, so that money in any country is dear, or, which 
is the same thing, that other products are cheap, Let us, 



OF THE FUNCTIONS OF MONEY. ^2!) 

for the sake of illustration, suppose, that in New York, 
flour is sold at four dollars per barrel. If, now, a mer- 
chant wished to import a cargo of wine from Bordeaux, 
since four dollars and a barrel of flour here, are at the 
same price, he can as cheaply send out the one as the 
other, with which to pay for his wine. But suppose that 
a barrel of flour will purchase more wine in Bordeaux, 
than four dollars or four ounces of silver. He will then 
send flour, instead of silver ; and, as all other men in their 
senses will do the same, of course no specie will leave 
the country. On the contrary, a merchant in London, 
wishing to purchase cotton in New York, will ascertain the 
relative value of specie, and that of calico, or hardware, or 
iron ; and will send specie in payment for his cotton, 
whenever he finds that, by a given value of this export, 
he can import a greater amount of cotton, than by the 
same value of any other. Other merchants in other 
places will do the same, until the requisite amount of 
specie has flowed in, and it has become as abundant here, 
as in other countries. Thus, when specie is high in any 
country, it goes out no where, and comes in from every 
where. 

On the contrary ; suppose an unproductive season to 
arise, and the relative quantity of specie in this country, 
to exceed the average in other countries. In this country, 
therefore, specie would be cheap ; that is, every thing else 
would be dear. The merchant, who wished to import a 
cargo of iron, would compare the prices of flour and of 
money. If flour was at fifteen dollars the barrel, that is, 
if he could purchase, at the same price, a barrel of flour 
and fifteen dollars, he would easily ascertain by which, 
in Russia, he could procure the greatest amount of iron. 
If fifteen dollars would procure the most iron, he would 
send the dollars, instead of the flour. This would be an 
advantage to him and to the country, because, by this 



230 OF THE FUNCTIONS OF MONEY. 

mode of exchange, he receives the largest amount in 
return ; and he procures it by means of that which is rela- 
tively the most abundant ; that is, which is manifestly 
the least needed. And a merchant in Liverpool, who 
knows the prices of our products, observing that he can 
exchange more profitably with us by receiving his pay- 
ment in specie, at the relative prices which specie and 
products sustain to each other, will receive his payments 
in specie. Thus, by the sending abroad of our specie, 
which we do not so much need, we shall be supplied 
with other products which we more need ; and hence, the 
relative value of specie to other products, will be again 
brought to an equilibrium. In other words, when specie 
is cheap in any country, it comes in from no where, and 
goes out every where. Thus, among countries between 
which there is frequent intercourse, and a free circulation 
of mercantile information, the price of the precious metals 
can never, for long periods, vary much from the medium 
rate, or, the rate which is fixed by nature, in the costs of 
their production. Hence we see, that a provision is made, 
founded on the self-interest of man, by which any great 
fluctuation in the exchangeable value of the metals used 
as a circulating medium, is prevented. 

IV. Hence, we also see what is a real scarcity, and 
what an abundance of 7noney ; if, by the term ononey, 
we understand merely a metallic circulating medium. 

Money, we have said, is the instrument by which we 
facilitate exchanges. Now, if we bear this in mind, it is 
easy to see what is a plenty, and what a scarcity of this 
instrument. A power-loom is an instrument for facili- 
tating the operation of transforming yarn into cloth. 
Po^ver-looms are too plentiful, when there are too many 
to perform the work that is required to be done : in this 
case, we can buy them cheap ; that is, we have to give 



OF THE FUNCTIONS OF MONEY. 2:U 

for them a less amount of cotton cloth, or of wool, or of 
silver. Power-looms are , scarce, when there are not 
enough of them to perform the operations which are re- 
quired ; in this case, we find it difficult to purchase them ; 
they are dear ; that is, we are obliged to give for them 
more than the ordinary amount of cotton, or of wool, or 
of silver. The case is the same with vehicles for trans- 
portation, or with any other instruments. 

Now, money is just such an instrument. It is required, 
to facilitate exchanges. To accomplish a given amount 
of exchange, a certain value in money is required, and, in 
ordinary times, this value always exists. And, the ex- 
changes remaining the same, we cannot employ for this- 
purpose more than this amount of value. If a quantity 
equal to one thousand ounces of silver, or of one thousand 
bushels of wheat, be required to perform the exchanges of 
a certain community, we cannot employ more than this 
amount of value. If we increase the quantity, we shall 
only decrease the value proportionally. If such a country 
be insulated from other countries, and we introduce into 
its circulation one thousand additional ounces of silver, 
equal to one thousand additional bushels of wheat, the 
value of the whole two thousand will be just equal to 
that of the one thousand ounces before ; that is, the value 
will not alter. If, on the other hand, from such a country 
thus insulated, we remove half the circulating medium, 
the remaining half will accomplish the purpose of the 
whole ; that is, it will double in value. This is evident, 
because there are neither more nor less exchanges to be 
made than before, and a variation in the instrument, does 
not vary the amount of the work which the necessities of 
the community require to be done. If there be a givers 
amount of yarn to be woven by twenty looms, the quan- 
tity will not be increased, by employing forty looms. 
And, if we employ forty, we must work all of them but 



232 OF THE FUNCTIONS OF MONEY. 

half the time ; that is, each one will be of half its original 
value. If the work be doubled, we must work them day 
and night ; that is, each one will be worth twice as much 
as before. But, manifestly, the quantity of work to be 
done being given, it can never be affected by varying the 
quantity of the mstruments by which it is accomplished. 

Now, suppose the exchanges, in a given community, be 
equal to fifty millions annually, and that there are required, 
to effect these exchanges, one million ounces of silver, and 
that this quantity of silver actually exists in its possession. 
Under these circumstances, there will be neither a plenty 
nor a scarcity of money, and it will be neither exported nor 
imported. But suppose, that, owing to a very productive 
harvrest, or some rapid improvement in the productiveness 
of human labor, the amount of products to be exchanged 
arises to seventy-five millions. Here will arise a scarcity 
of money ; there will be more exchanges than can be 
accomplished by the instrument employed for effecting 
them. The price of money will rise ; in other words, the 
price of other commodities will fall, and every thing will 
be cheap ; that is, though you cannot purchase more avooI, 
or butcher's meat, or cotton, with a barrel of flour, than 
you could last year, you can purchase more wool, or meat, 
or cotton, with the money, which a barrel of flour cost 
last year. The same result will take place, if, while pro- 
duction continues as active, one half of the specie for any 
purpose, as the carrying on of a foreign war, were sent 
out of the country. In this case, as in the other, the 
price of money will rise ; that is, money will be dear, and 
every thing else will be cheap. 

But it is easy to see, on the principles already explained, 
in what manner this difficulty will be met. In the first 
place, inasmuch as money prices are lower than any 
others ; that is, as specie retains its former value in all 



OF THE FUNCTIONS OF MONEY. 233 

Other places, bat here, it is dearer : that is, will purchase 
more than any other commodity ; other nations will send 
specie in exchange. This will be done, until the equi- 
librium is restored. And thus, this one nation shares the 
blessing of God's providence with its neighbors, since they 
receive its productions at a less price. In the second 
place, something else, as, for instance, notes of hand, will 
be, in part, substituted for specie; that is to say, as there 
is too much exchanging to be done in a given time by 
the instrument, at its utmost power of working, the work 
is spread over a longer time, and, instead of exchanging 
for specie now, the parties agree to exchange, but defer the 
payment for three or six months. Thus, when a weaver 
is unable to perform the work of his customers to-day, he 
promises to do it at a subsequent time ; and, in the mean 
while, if his present instrument will not accomplish it, he 
procures others that Avill. So, the merchant spreads the 
exchange of to-day over a larger time, and, in this time, 
is able to secure the instrument to accomplish the object. 

And thus we see, what is also an unusual plentifuiness 
of money. If, while exchanges were at fifty millions, 
and one million ounces of silver were necessary to effect 
them, a mine Were discovered, by which the quantity in 
circulation was doubled, the price of silver would fall, 
and we should give twice the usual price for commodi- 
ties. Or, if, while the silver remained the same, produc- 
tion, and, of course, exchange, diminished one half, the 
result would be the same. In this case, as we have 
already seen, specie would be sent in exchange to other 
countries, because it was less needed, and its place would 
be supplied by other productions which were more needed. 

Hence we see, that a plenty or a scarcity of money 
forms no occasion which calls for the interference of 

30 



234 OF THE FUNCTIONS OF MONEY. 

government, but that it is a matter, which, if left alone, 
will regulate itself. When money is really scarce, there 
is no need of prohibiting its exportation ; for no one will be 
so unwise as to export it. When it is abundant, it is useless 
to prohibit its exportation, because it cannot be prevented ; 
and because, if it could be prevented, by preventing it, we 
should deprive ourselves of the only method in our power 
of alleviating the evils which we suffer. The precious me- 
tals are relatively abundant in the states of South America; 
that is, they need other kinds of capital more than they 
need this. How absurd would be the policy in them, to 
forbid their exportation, and thus deprive themselves of 
all the conveniences of other countries, nay, of the very 
means on which progress in civilization and the arts, and 
in the real accumulation of wealth, depends. 

Hence we see, that the notion, that the plenty or scarcity 
of money is an unfailing indication of the prosperity or of 
the adversity of a country, is, in the highest degree, falla- 
cious. If the scarcity result from an increased productive- 
ness of labor, it is an indication of prosperity ; just as the 
business of weaving is most prosperous, when the weavers 
have more work than they can do. If it result from a 
casual withdrawment of specie, it is an ambiguous indi- 
cation, and its effect upon the country will depend upon 
the use which is made of that which is sent abroad. If 
it be employed in wars, or in other unproductive con- 
sumption, it is just so much loss ; and it matters not 
whether this amount of loss be in silver, or gold, or cop- 
per, or tea, or coffee, or cotton. If it be well invested, 
and return in the form of a profitable addition to the 
capital of the country, it is just as much a source of gain, 
as though the same profit were made upon any other 
article. It is profitable for an individual to give one 
thousand dollars for what is worth fifteen hundred dol- 



OF THE FUNCTIONS OF MONEY. 235 

lars, although, for a month afterwards, he be obhged to 
hve somewhat more economically. And what is profitable 
for the individual, is profitable for the country. 

And so of the plentifulness of money. If a mine were 
discovered, by which the quantity of silver were doubled, 
and if this silver were produced at a fair profit to the miner, 
it would be an advantage, inasmuch as it would open a 
new and profitable method of employing both capital and 
labor. But, in this case, it could be of use only by its 
exportation, because, as the number of exchanges in the 
country has not been increased, only the former amount 
of value is needed for a circulating medium, and to 
increase the quantity, will be only to diminish the value. 
By being sent abroad, capital, in other forms, susceptible 
of change and increase of value, is imported ; and thus, a 
country is made richer. If the plentifulness be the result 
of the diminution of exchanges, it is an indication of ad- 
versity, because it shows that productiveness has fallen ofi", 
that the means of living are less abundant, and that capi- 
tal is in haste to flee to more congenial climes. When 
this is the case, it generally springs from oppressive legisla- 
tion. In this case, it is better for a government to remove 
the cause, than to aggravate the evil by additional and 
aggravated wrong. To prohibit the exportation of specie, 
in such a case, is not only to oppress a human being, but 
to forbid him the use of any means by which he shall 
escape from your oppression. 

Thus we see, that no indication of the prosperity of a 
country can be derived, either from the plenty, or from the 
scarcity of money. The only sure indication of its eco- 
nomical prosperity, is the increase of its productiveness ; 
that is, an increase of the supply of objects of desire, at 
the same, or at a diminished amount of labor. The 
increase or diminution of the quantity of specie in circu- 



236 OF THE FUNCTIONS OF xMONEY. 

lation, is of importance, only in so far as it indicates this 
increase of productiveness, and no farther. We estimate 
a man's prosperity, not by the amomit of money in his 
possession, but by his power to command a larger or a 
smaller amount of the objects of desire. 

V. And hence, we may judge of the truth of that oft- 
repeated, but worse than puerile rnaxim, " It matters not 
what becomes oi property, so long as the money is in the 
country." If a million of dollars be lost in an unprofitable 
canal, or ten millions are sunk by a profitless experiment 
in manufactures, we are told, and even by many persons 
are expected to believe, that it is all of no consequence ; 
nobody is any poorer, because the money is in the country. 
That is, if a million dollars' worth of labor and capital 
have ceased to exist, we are no poorer than we were 
when this capital was existing, and yielding to its owners, 
and, of course, to the public, its annual production. If so, 
why not invest the whole capital in this manner, or why 
not pay men for throwing it all into the sea ? The money 
was merely the instrument which we used to effect its 
destruction ; and surely, we are but little better off, be- 
cause the means of destruction remain. If a thief, in 
the night, had emptied your store-house with a Avheel- 
barrow, you would not be very easily convinced you 
were no poorer, because he left the wheelbarrow behind 
him. In the late disastrous fire in New York, it is said 
that fifteen millions of capital Avere consumed. I did not 
hear that any specie was destroyed, and yet, I think it 
would be difficult to show to the sufferers, that no harm 
was done, because the money was all in the country. 
Now, it matters not in Avhat manner property is rendered 
valueless, whether by fire, or by folly. It matters not, 
whether fire does the work for nothing, or whether you 
hire workmen to do it for heavy wages. It matters not, 
whether the fifteen millions be turned into ashes, and 



OF THE FUNCTIONS OF MONEY. 237 

thus rendered valueless, or whether it be turned into a 
canal, which is equally valueless. If your store and 
goods are burned up, you would give away the ashes. 
If it be turned into a canal, which you would be equally 
willing to give away, in what respect are you better off 
in the one case, than in the other ? 

VI. We have already seen, that the natural price for 
the precious metals is the cost of their production, and 
that a given amount of them will be required for effecting 
the exchanges of the community. Suppose, now, these 
metals to be indestructible, and unchanged in quantity, 
and the quantity of other productions annually created, 
to be, for fifty years, the same ; it is evident that specie 
and other products would, at the end of that time, bear 
the same ratio to each other, as at present ; that is, the 
money prices of all commodities would remain unchanged. 
But neither of these is the case. In the first place, the 
productions of the earth annually increase ; this is evi- 
dent, from the increase of its number of inhabitants. 
And, on the other hand, the precious metals are annually 
produced, in large quantities, from the mines. But they 
are also destructible, and suffer from wear and tear, when 
used as coin ; and they are also consumed in the purposes 
of the arts. Now, if these two causes exactly counter- 
balanced each other ; that is, if the supply of the precious 
metals were precisely such as to correspond to the in- 
crease of productiveness, and the necessity of increased 
means of exchange, and to the amount consumed in 
the arts, prices would still remain as before. If the in- 
crease of the metals were not sufficient to supply the 
increased demand arising from increased productiveness, 
and other causes, the price of the metals would rise ; that 
is, the price of other things would fall. And if, on the 
other hand, the increase of the metals were greater than 
the increase of productiveness, their price would fall ; 



238 OF THE FUNCTIONS OF MONEY. 

that is, the price of other things would rise. Now it 
appears that, previously to the discovery of America, for 
several centuries, there was no great change in the rela- 
tive value of specie and that of other commodities. That 
event, however, by throwing upon the world an immense 
amount of the precious metals, effected, at once, a great 
change in their value. As they are but slowly consumed, 
this diminution of their value continued for some time to 
increase. This depreciation was still more advanced, by 
the troubled condition of Europe, which prevented the 
development of her productive energies ; and by the slow 
progress which she was making in the arts of civilization. 
But, ol late, in consequence of the introduction of ma- 
chinery and the division of labor, and of improvements 
in government and legislation, the increase of produc- 
tiveness has more than kept pace with the increased sup- 
ply of the precious metals. Hence, of late, prices have 
fallen ; and this has been specially the case, in conse- 
quence of the peace of the world, for the last twenty 
years, since the fall of Napoleon. 

These remarks are illustrated by the following facts : 

The quantity of wheat, in France, which was ex- 
changed in 1520, for 512 grains of silver, was exchanged 
in 1536, for 1063 grains ; in 1602, for 2060 grains ; and, 
in 1789, for 2012 grains ; thus designating a variation 
in the prices of silver, according to the principles which 
we have suggested. 

Now, as the progress of geology, mining and mine- 
ralogy, will probably greatly increase the production of 
the precious metals in future, it is probable that their 
price will continue to fall. Hence, when indefinite leases 
are given, it is wise never to fix a rent at a given amount 
of silver per annum, but at a given amount of some other 



AGENCY OF GOVERNMENT. 239 

less variable product, such as wheat. Or it would, perhaps, 
be better still, to average the rent at definite periods, on 
terms which should be equitable, and of which neither 
party could take any advantage. The oldest professor- 
ships in Oxford, were established upon a salary of £40 
sterling a year. This was, probably, then sufficient to 
support a teacher handsomely ; and was equal to the rent 
of an ordinary farm. If a farm had been leased then, at 
£40 per year, perpetually, the rent, at this time, would 
have been but a very small part of its value.* 



SECTION IV. 

OF THE AGENCY OF GOVERNMENT, IN RESPECT TO A CIRCU- 
LATING MEDIUM. 

We have, thus far, said nothing concerning the agency 
of government, in respect to a circulating medium. The 
reason is, that, thus far, the necessity for the exertion of 
such agency has not been apparent. Two men use 
money, in exchange, for the same reason that a man uses 
a hammer for the purpose of driving a nail ; because, he 
thus economises both time and labor. All men use money 

* It is difficult to ascertain, with any degree of accuracy, the annual 
supply and the annual consumption of the precious metals. M'Culloch, 
a high authority, estimates the supply from the American, European, 
and Russo-Asiatic mines, at six millions pounds sterling per annum, 
and the consumption, for the purposes of the arts, at nearly four mil- 
lions ; leaving somewhat more than two millions pounds sterling of 
silver and gold, for the purposes of coining. 

Dictionary of Commerce : Jlrt., " Precious Metals J' 



240 AGENCY OF GOVERNMENT. 

in exchanges, for the same reason that all men use hammers 
for the purpose of driving nails ; because they all find that 
they thus save time and labor. 

Had governments no agency at all in the matter, the 
precious metals, as a circulatmg medium, might have 
been both introduced, and universally employed; and 
they loould have been so introduced and employed, as 
they actually were, in the time of Abraham. We hence 
see, as we have before remarked, that a circulating me- 
dium derives its use, as money, from its inherent fitness, 
and the desire of men so to employ it, and not from any 
agency of government in establishing it. While, how- 
ever, this is the case, and while this is always to be borne 
in mind, there is yet some agency, which society, or 
government, which is its agent, may exert, that shall 
increase the convenience of whatever may be used as a 
circulating medium. 

This agency has reference to two circumstances. 

1. Whenever any substance has been found universally 
adapted to the purposes of exchange, it is important that 
it should be used by all men, unless something to the 
contrary be specified by particular contract. If I owe a 
man for a hat, and when I come to pay him, he demand 
payment, not in silver, but in beaver skins, I may not be 
able to procure them, and he may hold me his debtor, 
and imprison me accordingly. If I, instead of paying 
him in silver, ofiier him leather, and declare that I will 
pay him in nothing else, he will be defrauded out of his 
due. Now, to prevent disputes without end, it is desirable 
that something be fixed upon, ot which the tender shall 
discharge for ever the debtor's obligation. And, as this 
would most naturally and most justly be the substance, 
which all men have chosen for a circulating medium, 
this is, most properly, chosen. Hence, society, or govern- 



AGENCY OF GOVERNMENT. 241 

meiit, have a right to estabhsh the precious metals as a 
legal tender ; that is, to enact, that if a man declare that I 
owe him ten dollars, and I oifer him ten silver dollars, if 
he choose not to receive them, I am under no obligation 
to give myself any more trouble about it. The tender, on 
my part, is a full release. I am under obligation to offer 
nothing else ; and he has no right to demand any thing 
else. Nor is there, in this, any oppression. If a man 
wish to be paid in something besides money, he can 
always specify it in the contract ; and thus his object 
can be accomplished. The whole effect of such a law 
is, to prevent disputes, and to enact what shall be a full 
and valid release from obligation, when nothing specific 
has been agreed upon. 

But, secondly : If any substance be used as a circu- 
lating medium, it is evident that its utility will be greatly 
increased by several circumstances. Of these, the prin- 
cipal are : — 

1. That it be of uniform purity. Were it otherwise, 
every piece must be tested by chemical analysis. This 
would be, of course, impossible ; and hence, its utility 
would be greatly diminished. 

2. That it be divided into portions of such a size, as 
shall be most convenient for the purposes of exchange. 
Were coins a foot in diameter, or as small as the head of 
a pin, they would, in either case, be almost useless. The 
former could be used only in large exchanges ; the latter 
would be so small, as to be very frequently lost, and of so 
small value, as to consume a great deal of time in count- 
ing them. 

3. That it should be so prepared, that each piece shall, 
on inspection, indicate its value, and also indicate, that no 

31 



242 ^ AGENCY OF GOVERNMENT. 

change has been effected in that value, by design. To 
give to the precious metals these qualifications, is the 
intention of coining. 

But, it is evident, from a moment's consideration, that 
the preparation of coin in this manner, for the public use, 
could never be safely entrusted to individuals. The 
temptations to dishonesty are too great for ordinary hu- 
man virtue. It is evident, that such a work should be 
executed by those, whose interest would lead them to 
perform it with the greatest possible fidelity. Hence it 
is, that individuals have, in all civilized countries, surren- 
dered the right of coining money to the whole society, 
that is, to government ; and governments have executed 
it, by means of agents appointed for that purpose. These 
agents have been always placed under such circum- 
stances, that their interest is strongly on the side of 
honesty ; and the supervision over them is of such a na- 
ture, that any failure, either of skill or of integrity, could 
be easily detected. 

Such are the limits, within which the powers of 
government, in respect to money, are restricted ; and such 
is the reason, for which this power is conferred. Of the 
manner in which a government should execute this trust, 
it is only necessary to add a few remarks, 

1. It is the business of the government to regulate the 
purity of money. Inasmuch, however, as this whole 
power is conferred for the public convenience, the exer- 
cise of this power, should never be on the ground of arbi- 
trary enactment, but of public convenience. Thus, as 
money is liable to loss from wear, and as this loss is ren- 
dered less by the addition of a small portion of alloy, 
which renders it harder ; and, also, as the purification of 
the precious metals from all alloy, would be a process of 



AGENCY OF GOVERNMENT. 243 

great and useless expense, it is for the convenience of all 
parties, that some portion of alloy should be allowed to 
remain, when the metal is prepared for coining. The 
degree of this adulteration should, however, be fixed by- 
law, and should thus be publicly known, and should be 
invariable. 

2. The government should regulate the form and size 
of the coin. 

1. The size of the pieces should be such, as shall best 
adapt them to the purposes of exchange. 

2. Their relative proportions to each other, should be 
such as to adapt them, most conveniently, to the purposes 
of enumeration. On this account, the decimal system, 
adopted by the United States, is probably preferable to 
any other. The size having been once fixed upon, it 
should remain invariable. 

In respect to the form of money, we may add : 

1. It should be adapted to convenience for counting. 
On this account, flat coins are always preferred. 

2. It should present the least possible surface to fric- 
tion. On this account, the thicker the pieces are, the 
better, provided they be not inconvenient for piling. 

3. The whole surface, or so much of it as is possible, 
should be so ornamented, that if any of the metal should 
be feloniously filed, or worn away, it may be easily dis- 
covered. For the same reason, the edges should always 
be milled. 

4. To reduce the amount of friction, as much as possi- 
ble, the rim of the edge should be so raised as to protect 
the face. 



244 AGENCY OF GOVERNMENT. 

It would be of advantage, also, if the amount of pure 
metal in every piece were always stamped upon its face. 
'This would be an additional check against any interference 
on the part of government with the purity or the weight of 
coin. It would also allow persons entering into contracts, 
to make them, either in weight or in denomination, as 
they chose ; and thus, to give them additional means of 
protection against interference of this sort, even if it were 
attempted. 

Inasmuch as a piece of metal coined, is worth more than 
a piece uncoined ; that is, as it has an additional value, 
derived from the means of verification conferred upon it ; 
as this additional value is the property of the owner, and 
as the conferring of it is a costly operation, it is right that 
the owner should pay for it. Were nothing charged for 
it, as it is worth more when coined than when uncoined, 
when it could not profitably be sent abroad in one form, 
it might be so sent in the other form ; hence, when it 
could not be sent in bullion, it might be coined, and sent 
away in money. Hence, there would be, in such a case, 
a premium given to its exportation. But, on the other 
hand, the charge for this operation should be just suffi- 
cient to defray the expenses of the work. If more than 
this is charged, so that coining would be a profitable 
business, it would soon be done by private individuals, 
for gain; and the country would be flooded with coin 
made in other countries, and be thus liable to great impo- 
sition. The government would thus soon lose the busi- 
ness. If it be done at the lowest practicable price, as no 
one can make any thing by the operation, all temptation 
to private coining is taken away. 

Inasmuch as money is liable to continual Avear from 
friction, and as it is thus steadily, though slowly, di- 



AQENCY OF GOVERNMENT. 245 

minished in value, it at last becomes so much worn, as 
to be unfit for circulation ; because its impression is effaced, 
and also because it contains much less than the standard 
quantity of metal. When it becomes thus unfit for circu- 
lation ; on whom is the loss to fall ; on the last holder, or 
on the whole community ? Doubtless, on the latter. The 
last holder has derived no more benefit from it than any 
one of the thousands of holders, each one of whom has 
contributed, by using it, to depreciate its value; and there 
is no reason why he, in preference to any other, should 
bear the whole loss. In other words, worn-out coin 
should always be received at the mint, at par, and ex- 
changed for new. This remark, however, should apply 
only to ivorn-out coin ; and not to coin which has been 
fraudulently diminished in value. Pierced or clipped 
coin, should not be exchanged. This will tend to pre- 
vent every one from receiving it ; and will thus tend to 
keep it in the hands of those who have robbed it of a part 
of its value. 

If such be the agency which a government is called 
upon to exert, in respect to a circulating medium, it will 
be seen that it has no right to interfere in any other 
respects. Hence, for instance : 

1. It has no right to prevent the exportation or im- 
portation of specie. This, like any other commodity, if 
let alone, will regulate itself Specie will never be sent 
abroad, unless it be for the advantage of the country that 
it should be so sent abroad. The actual monetary con- 
dition of a country cannot be affected by arbitrary acts. 
Besides, a man has the same right over whatever silver or 
gold he may possess, as he has over cotton, or wool, or 
any thing else ; and he has just the same right to exchange 
it loith any one^ and/o?' ajiy things as he may think for 
his advantage. 



24G AGENCY OF GOVERNMENT. 

2. A government has no right, arbitrarily , to aUer the 
value of money ; that is, to say that a dollar shall contain 
either more or less silver than it now contains. To do 
so, is, of necessity, to interfere with private contracts ; 
and thus to expose one half of the community, a prey to 
the dishonesty of the other half. If A have promised to 
pay B, one thousand dollars ; meaning by this, one thou- 
sand ounces of silver ; and the government enact that 
the dollar shall hereafter contain only half an ounce of 
silver, and oblige B to receive half ounces, instead of 
■ounces ; they defraud him of precisely half his due. This 
will be the case, not only with B, but with all the creditors 
in the whole community. It is just the same interference, 
as though they should enact, that a debt of one thousand 
bushels of wheat should be paid with five hundred bushels; 
or, that a debt of a yard of broadcloth should be paid with 
half a yard. 

If, however, the coin, by common consent, is found to 
need a change of any kind, and the public convenience 
actually require it, it is to be done by common consent, 
after sufficient notice of the change has been given, and 
be so done, that all contracts existing at the time, be 
left inviolate. If the amount of silver in a dollar, ni this 
country, should ever be changed, it should be eifected by 
exchanging, at the mint, the present dollar at its value in 
silver, for the new dollar, at its value in silver ; so that all 
contracts now in existence, should be fulfilled according 
to the terms of the agreement. A still better method 
would probably be, to issue a new coin, with another 
name. This, I believe, has lately been done in Great 
Britain. Instead of the guinea, of twenty-one shillings, 
a gold coin, of twenty shillings, has been introduced, 
called a sovereign. 

3. A government, 1 think, has no right to fix the rela^ 



AGENCY OF GOVERNMENT. 247 

tive value between the precious metals. This cannot be 
done, in fact, because their relative value is liable to con- 
tinual fluctuation. If both are a legal tender, the debtor 
has the right of paying in that which he prefers ; and, 
as he may be always expected to choose to pay in the 
cheaper, he may thus frequently defraud his creditor, to 
the amount of the fluctuation. It is better to have but 
one a legal tender, and leave the other, as any other 
matter of merchandise, to be exchanged by special con- 
tract between the parties. In this respect, I think the 
system of Great Britain preferable to our own. Gold, as 
has been remarked, is there the only legal tender, for all 
sums above twenty shillings ; and silver, for all sums 
below that amount. Hence, whenever contracts are 
made, their amoimt determines the metal, in which the 
payment is to be made. 



CHAPTER THIRD. 

OF A CIRCULATION BY MEANS OF A PAPER CURRENCY. 



SECTION I. 

OF THE NATURE OF BANKS IN GENERAL. 



PART I. 

BANKS OF DEPOSIT AND EXCHANGE. 

We have already treated somewhat at large upon the 
subject of division of labor : the circumstances in our 
constitution by which it is introduced ; and the benefits 
which result to every class of the community from its 
introduction. We have also seen, that division of labor 
is always carried on most successfully, when it is united 
with the use of some natural agent. Thus, in the manu- 
facture of cotton, by the union of steam or water power 
and machinery, with division of labor, production is greatly 
increased ; and every class of society is enriched. And we 
have also seen, that the one could not be carried to great 
perfection, without the employment of the other; and 
also that, in the nature of things, the one actually sug- 
gests and renders necessary the employment of the other. 



BANKS OF DEPOSIT AND EXCHANGE. 249 

Now all these remarks apply, with the same force, to 
the labor of exchange, as to any other labor. From the 
necessities of society, it is evident that a very large por- 
tion of its labor must be the labor of exchange. The 
increase of this labor would naturally lead to the discovery 
of some natural agent, by which it might be executed at 
less expense of time and industry. At first, the rudest 
instruments, such as cattle, and the baser metals, were 
employed. These gradually gave place to the more per- 
fect instruments, gold and silver. As the use of this more 
productive instrument increased very greatly the number 
of exchanges, and thus required more laborers, instead of 
fewer, in this department of industry, it was natural, in the 
next place, that division of labor should be introduced, in 
order to use the instrument, or natural agent, with the 
greatest degree of success ; and also to accomplish, with 
a given amount of industry, the greatest amount of pro- 
duct ; that is, of exchanges. 

Division of labor, in this department of industry, as in 
every other, has proceeded from rude beginnings, to greater 
and greater perfection. At first, its benefits were but im- 
perfectly appreciated. By experiment, they were more 
and more unfolded ; and now, although its principles may 
not be generally understood, yet, it is coming into very 
general use throughout the civilized world. Instead of 
banks in none but the great marts of trade, as was the 
case a century or two ago, we find them, in free states, 
employed in towns and villages, over the whole commu- 
nity ; and, when judiciously administered, their effects 
are the same upon the small, as upon the great sections 
of the community. 

The word bank, is said to be of Italian origin. '' In 
the infancy of European commerce, the Jews in Italy 
were wont to assemble in the market places of the prin-- 
32 



250 BANKS OF DEPOSIT AND EXCHANGE. 

cipal towns, seated on benches, ready to lend money : 
and the term bank, is derived from the Italian word 
banco, a bench.'' When any of these money-lenders 
failed, his bench was broken. Hence, the origin of the 
word bankrupt. 

1. We have shown how very great, in a civilized 
country, must be the amount of exchanges. We have 
also shown, that these exchanges are greatly facilitated, 
by means of the use of a metallic currency. But it is 
evident, that were the labor of exchanges to remain at 
the point to which we have carried it, every individual 
engaged in this business, would be obliged to keep con- 
stantly on hand, a great amount of silver and gold, in 
order to effect his exchanges. This would very greatly 
limit the number of exchanges which he could effect, with 
a given amount of capital. If a merchant were worth one 
hundred thousand dollars, and were obliged to keep con- 
stantly on hand, fifty thousand dollars" worth of gold and 
silver, he could effect exchanges only with fifty thousand, 
and must keep fifty thousand dollars constantly idle. If, 
by any means, he could diminish this amount, by so much 
as he diminished it. could he increase his amount of ex- 
changes, and, of com'se, effect them cheaper. 

2. Were men thus to keep on hand so large an amount 
of the precious metals, and actually to make their exchan- 
ges by means of metallic transfer, much time would be 
consumed in transportation. A large number of persons 
must be employed constantly, in no other business than 
in carrying silver and gold from one merchant to another, 
in the same place, and between the merchants in different 
places. 

3. Were exchanges to be made directly, through the 
medium of money, it is evident that every payment must, 



BANKS OF DEPOSIT AND EXCHANGE. 251 

of Decessity, be counted by both parties. This, iu large 
payments, would consume much time, and cause great 
wear and tear of the coin. Were a large mercantile house, 
which transacts exchanges to the amount of from ten, to 
one hundi-ed thousand dollars" worth in a day, obliged to 
count all the money paid and received, every one must 
see that more than thrice the present number of agents 
must be employed ; and thus, the expenses of the establish- 
ment would be greatly increased. The effect of this ad- 
ditional expense for labor, would be very greatly to in- 
crease the cost of exchanges ; that is, the price of pro- 
ducts. 

4. The precious metals are small iu bulk, and, there- 
fore, are very liable to be stolen. The pieces of the same 
denomination being of precisely the same form and im- 
pression : if stolen, they cannot be identified. Hence, 
more than usual cai'e is necessary, in order to secin-e them 
against robbery. TTere every individual, therefore, to keep 
on his premises, the whole amount of the precious metals 
necessary to effect his exchanges, every one would be 
obliged to guard his property with increased vigilance, 
both by day and by night. He would be his own banker, 
and must add to his present expenses, all those expenses 
necessary to the security of a bank. 

But let us now see, by how simple an arrangement all 
these difficulties might be obviated. Suppose this labor 
were divided, and that ail the merchants in a town, in- 
stead of being every one his ovv n banJ^er, agreed together 
to employ a smgle person to become the banker for all of 
them. Let us suppose this person to procure a safe re- 
pository for all the specie in the neighborhood, and to 
become responsible for its safe keeping. Suppose, also, 
that these merchants, instead of keeping their money 
themselves, all lodged it with him. and that he opened 



252 BANKS OF DEPOSIT AND EXCHANGE. 

an account with each one, crediting him with whatever 
he deposited, and debiting him to ah that he withdrew ; 
and that every one was at liberty to withdraw, at any 
moment he chose. 

It is manifest that, in such a case, if A owed B one 
thousand dollars, he would not send to the bank and 
withdraw the money for B to replace it again, but would 
give to B an order for one thousand dollars, which B 
would present to the. banker, and the one thousand dollars 
would be withdrawn from A's account, and added to that 
of B. If B owed C, he would do the same. C would do 
the same to D, and perhaps D would owe A, and would 
pay him in the same manner. At the close of the day, 
their bank accounts would stand just as they were at the 
beginning ; and yet, there have been four payments made 
and received, of one thousand dollars each. Yet, not one 
.cent of the specie has been touched. Not a dollar of it 
has been counted. It has been all done by a few entries 
made on the books of the bank, and done in a very few 
minutes. Here, then, we see that the writing of a few 
lines saves all the labor of repeated transportation, of as 
frequent counting of coin, and also all the cost of wear 
which must arise from every such operation. Besides, 
inasmuch as no more vigilance is necessary to secure from 
depredation the whole sum of specie than any one part of 
it, it is evident that great additional labor is saved in this 
respect also. 

But this is not all. We see, from the case above, that 
at the close of the day, although each one had made a large 
payment, yet every one stood with the bank, just as he 
did at the beginning. Though this will not be so in 
every case, yet it is evident that, supposing no great 
change in the value of products, such must be the gene- 
ral result. The reason is evident. Every man must sell 



BANKS OF DEPOSIT AND EXCHANGE. 253 

as much as he buys, and he evidently must buy as much 
as he seUs. When he buys, he pays money ; when he 
sells, he receives money ; that is, the money which every 
man receives,, must be as much as he pays away, with the 
addition of the profit which he has made by the opera- 
tion. So that, if all the exchanges of one hundred men 
were made among themselves, and all purchases paid for 
in cash, and their accounts were all kept at one banking- 
house, these accounts must all, at the close of every day, 
very nearly balance each other. Under these circum- 
stances, it would very soon appear, that it was unneces- 
sary to have so large a sum in deposit, in order to meet 
the emergencies of exchange. Instead of being obliged 
to have enough there to pay for every purchase, it would 
be sufficient, if every man had enough to meet any acci- 
dental variation between his purchases and sales. Thus, 
each one would be enabled to withdraw a large portion of 
his deposit, and employ it in active business. In this 
manner, the amount of active capital in a society would 
be greatly increased ; inasmuch as, he who was formerly 
obliged to keep on hand, and out of employment, ten 
thousand dollars, might now accomplish the same purpose 
with one thousand dollars ; and he might employ the re- 
mainder in active exchanges. Thus would all exchanges 
be cheaper, products would be at a lower price, and the 
whole community would be richer. 

Suppose, now, the business of this society to become 
so extensive, that one banker is unable to transact the 
operation of all these transfers, and another is also em- 
ployed, who opens another banking-house on the same 
principles. If we bear in mind the fact, that the pur- 
chases and sales must, in the end, be equal to each other ; 
that is, that every man receives as much money as he pays 
away J the transactions of the day must, as before, equalise 
each other. If both parties transact their business at the 



254 BANKS OF DEPOSIT AND EXCHANGE. 

same bank, this, as it has been just shown, will be the 
case. If they transact their business at different banks, 
it will but slightly differ. A pays B in a draft on the 
first bank, which B deposits in the second bank. B pays 
C in a draft on the second bank, which C deposits in the 
first bank. At the close of the day, these banks exchange 
drafts, and thus, without any labor or counting, or trans- 
portation, by merely writing a few words in a bank ledger, 
the whole transaction is completed. It is hardly possible 
to find a case, in which, by the division of labor, a greater 
increase of productiveness is given to human industry. 

Now the case will be the same, if banks be established 
in different cities, or in different countries. It is to be 
borne in mind, that the sales and purchases of every 
society, as well as of every individual, must be, substan- 
tiaUy, equal. The reason is obvious ; for a man can buy 
only as much as he can pay for ; and, as much as he can 
pay for, he will generally buy ; and, if he buy skilfully, 
he will lose nothing by the exchange. In other words, 
all exchange is ultimately and substantially exchange in 
kind. And, as the things exchanged are, at the place of 
exchange, of equal value, the purchases and sales must be 
equal to each other. If Boston buy ten million dollars' 
worth, of New York, it must send ten million dollars' 
worth v/ith which to pay for it. If both parties made these 
exchanges by means of money, not only the goods, but 
also the money, must be transported to and fro, at every 
exchange. If, however, banks be established in both 
places, and both parties transacted the payments by means 
of their agency, all this would be avoided. Thus, for 
instance, suppose A in Boston sells to B, in New York, 
ten thousand dollars' worth of domestic cottons ; he is 
entitled to draw on B for that amount ; that is, to order 
him to pay it, to whomsoever he will. Again : Suppose 
C, in New York, sells to D, in Boston, ten thousand dol- 



BANKS OF DEPOSIT AND EXCHANGE. 255 

lars' worth of French silks ; he, in hke manner, is author- 
ised to diaw on D, for that sum. D, in Boston, may buy 
of A his draft on B, which he sends to his creditor, C. C 
presents it to B, who pays it at sight ; that is, D pays A, 
and B pays C ; and thus these debts mutually cancel each 
other, and all the labor consists in writing these drafts, 
sending them by post, and making the necessary entries 
upon the books of the bank. 

We see, therefore, that if the exchanges between two 
places were equal, by means of banks, the whole business 
of payment might be made without the transfer of any 
specie whatever. 

But, suppose the business between two places were not 
equal ; that is, suppose that Boston purchased of New 
York more than it sold to that place ; suppose, for in- 
stance, that Boston purchased of New York, ten million 
dollars' worth, and sold to that place only five million 
dollars' worth. In this case, one half the payments 
would be made in productions, in the manner we have 
already suggested. The remaining five millions must, 
however, be provided for, in some other way. One ob- 
vious way would be, to send this remainder in specie. 
But, it will be asked, how is this five millions of specie to 
be provided ? We answer, by sending the five millions of 
products, which would otherwise have been sent to New 
York, to some other place, where specie can be had at the 
cheapest rate ; and thus, paying for what we have pur- 
chased at New York, by two exchanges, instead of one. 
This is one method. Another method would be, for 
Boston to send five millions of her domestic products to 
some other market, say to the West Indies, and exchange 
it for some other product, say cofliee, or sugar ; and remit 
these to New York, to pay the balance of her debt. This 
would be sold, the proceeds deposited in the New York 



256 BANKS OF DEPOSIT AND EXCHANGE. 

banks, and he who owed the New York merchant, would 
purchase a draft in Boston, of him who had imported the 
coffee or sugar ; and thus the debt would be liquidated. 

Now, it is manifest, that it is, to Boston, of no conse- 
quence, in which way she pays this debt ; whether by 
sending directly to New York ten millions of her products; 
by sending five millions to New York and five millions 
to South America in exchange for specie ; or by sending 
five millions to New York and five millions to Cuba, in 
exchange for coffee and sugar. In either case, she pays 
but ten millions ; and the way in which it is paid is a 
matter of indifference. And, it is also obvious, in which 
manner Boston will choose to pay her debt. Every one, 
who has a debt to pay, will pay it in that which will 
liquidate it at the least expense to himself. If five mil- 
lions of specie can be procured by four and a half millions 
of other products, it will be best to pay the debt in specie. 
If sugar and coffee, worth five millions in New York, can 
be purchased by four and a half millions' worth in Boston, 
she will choose to import coffee and sugar, in payment. 
And thus, the account will be adjusted, in every case, 
according to the interests and conveniences of the respec- 
tive parties ; that is, of the whole community. 

This is the case, if we take into consideration two 
tradiug places in the same country. But, the case is the 
same with the trading cities over the whole world. And. 
by thus allowing every thing to regulate itself, the whole 
business of exchange is adjusted. 

Suppose, for instance, that Great Britain has purchased 
of us, more than we receive in return. There will then 
be a portion of her debt unpaid ; and there will then be a 
demand for something wherewith to pay it. In this case, 
drafts on America will rise ; that is, those who have pay- 



BANKS OF DEPOSIT AND EXCHANGE. 2»7 

ments to make, will overbid each other, and drafts will 
rise ill price. In this case, a French merchant, who has 
sent a cargo of silks to America, will find that he can get 
more for it, by selling, in London, drafts on his corres- 
pondent in New York, than by importing American pro- 
duce. In this case, he will sell, to the London merchant, 
drafts to the whole amount of his cargo ; that is, England 
pays France, for sending to America sufficient produce to 
pay the deficiency which she is unable, profitably, to sup- 
ply from her own productions. In this manner, the de- 
ficiency of the exports of the first country to the second, 
is made up by the excesses of a third ; and, as every one 
receives as much as he pays out, and imports, on the whole, 
as much as he exports, by free communication among 
themselves, the balance is speedily adjusted. 

Hence, bills of exchange, or orders of payment for 
goods already delivered at any particular place, become 
an article of merchandise, as much as any thing else. If 
I send a cargo of cotton to Liverpool, and I can get more 
for the orders to pay the amount of it to some one, there, 
than for produce which I might bring back in return, I 
shall dispose of it in that manner ; that is, receive from 
some one, perhaps a South American merchant, who is 
obliged to make payments in London, more than I should 
gain by the return cargo. In this case, I order my ship 
to return in ballast, or else to bring out a freight for some 
one who wishes to transport goods to this country, from 
Europe. This being the case, it is of importance that 
some persons should devote themselves to this branch of 
labor. By these means, both parties know how they can 
be best accommodated. The sellers know when to sell, 
and the buyers, when to purchase. This business is car- 
ried on, to a considerable degree, by banking institutions, 
and by men who devote themselves to the buying and 
selling of exchange. Those who transact this business, 

33 



258 BANKS OF DEPOSIT AND EXCHANGE. 

however, transact it, to a great degree, through the agency 
of banks, by means of the facihties derived from which, 
they are enabled to accomplish it, with vastly less ex- 
pense of time and labor. 

Such, I suppose to be some of the principal functions 
of banks, as offices of deposit. They, by means of division 
of labor, diminish the amount of the circulating medium 
necessary to carry on the exchanges of a country ; they 
greatly diminish the labor of transportation and of count- 
ing money, in the same place, and almost remove the ne- 
cessity of transporting it between different places. 

The Bank of Amsterdam was purely a bank of deposit. 
It received the specie of the merchants of the city, and 
gave them acknowledgments, which were transferable, 
like specie ; and by the transfer of these, on the books of 
the bank, all large payments were universally made. 
And, so great was the confidence in the management of 
the bank, that certificates of these deposits were current 
throughout Europe. Adam Smith attributes the origin 
of this bank, to the desire of the Dutch to prevent their 
coin from migrating into the surrounding states, and 
being replaced by the inferior and debased coin, with 
which they were liable to be inundated. That this might 
have been the idea, from which the first conception of 
such a bank originated, is very possible. But, whoever 
will observe the advantages of such an institution, as they 
have been stated above, must be aware, that when the 
transactions of a commercial city became numerous, and 
the exchanges became active, merchants could not long 
fail of falling upon some instrument which their necessi- 
ties so imperatively required, and which all their habits 
of thought would be so likely to suggest. 

From what has been said, it is obvious that when all 



BANKS OF DISCOUNT. 259 

other methods fail of adjusting the difFejrences of exchange 
between two places, specie must be procured, and remit- 
ted from the one to the other. This will always pay the 
debt, and equalise the exchange. Hence, the highest 
rate of exchange, which, under natural conditions, is pos- 
sible, between two countries, is that which is sufficient 
to procure the specie, and to remit it to the place of pay- 
ment. 



PART II. 

OF BANKS OF DISCOUNT, OR LOAN. 

We have already seen, that all production is the result 
of the application of industry to capital. But, we also see, 
that the capital and the industry are frequently in the 
hands of different persons. One has capital, but does not 
wish to labor with it himself. Another has industry and 
skill, but has no capital, with which to create products. 
It will be at once seen, that it will be a great advantage 
to both parties, if the capitalist can loan his capital to the 
laborer, and receive from him a fair compensation ; while 
the laborer, by uniting capital with his industry, will be 
able, after paying this compensation, to retain a handsome 
remuneration for himself. 

For the accomplishment of this result, the introduction 
of a circulating medium presents great facilities. A flour 
merchant might have more flour than he wished, and 
would be willing to loan it to another person, who wished 
to establish himself in business ; but, perhaps, the person 



260 BAx\KS OF DISCOUNT. 

who applies to him for the loan, understands nothing but 
the trade in iron. The capital of the one, therefore, in 
this case, could he of no service to the other. But, let 
the flour merchant convert his flour into money, and then 
he can loan it to any one who needs it, no matter what 
may be the occupation in which he hopes to be the most 
successful. 

As men accumulate capital, they are enabled thus to 
loan. There are always multitudes of persons who wish 
to borrow. But, he who is willing to loan, is also fre- 
quently engaged in active business, and can rarely take 
pains to ascertain the character of the borrower ; neither 
may he have any means of so observing his affairs, as 
to secure himself, in season, against the results of dis- 
honesty. Hence, his risk of loss would be great ; the rate 
of interest high; the time requisite to efl!"ect and to watch 
over loans, great ; and, there would be, on the part of 
the capitalist, but little disposition to part with the imme- 
diate control of his means. 

Thus, also, if a laborer wished to borrow of a private 
capitalist, he would not know, to whom to apply ; much 
time would be lost in finding a capitalist ; and, if the 
capitalist were timid and suspicious, it might be utterly 
impossible to satisfy him that the security was sufficient, 
unless it were in property with which he was acquainted ; 
or, unless the money were to be employed in operations 
with which he happened to be conversant. Thus, a great 
inconvenience would be sufl"ered, both by those who were 
willing to lend, and by those who wished to borrow money; 
that is, capital. 

Now, it is obvious, that these inconveniences would be 
greatly relieved, if, by a division of labor, some persons 
were set apart for the express purpose of loaning money. 



BANKS OF DISCOUNT. 201 

In this case, those who had more capital tiian they wished 
to employ, would exchaDge it for money, and place it in 
the hands of the money-lender ; and those who wished to 
borrow, would go to him for such accommodations as 
they needed. He would attend to the whole business of 
loaning, and collecting both the principal and the interest, 
and would pay the interest over to the capitalist, receiving 
for himself a fair compensation for his expenses, labor 
and skill. 

In this manner, banks perform the service of bringing 
together the lenders and borrowers, so that he who has 
any thing to lend, can lend it, if there be any one who 
wishes to borrow ; and so that he, who wishes to borrow, 
can borrow, provided there be any one who wishes to lend. 
And thus, by bringing the wants of both parties to act 
upon each other, each has the advantage of loaning or of 
borrowing, on. the most favorable terms. 

Nor is this all. When this is once accomplished, the 
whole may be done, in the shortest possible time ; because, 
the greatest part of the time, without such an arrangement, 
would be spent in bringing together two individuals who 
could agree upon the loan in question. Hence, a nego- 
tiation, which might otherwise have taken half a day from 
the labor of both parties, may now be perfected, in a very 
few minutes. This is a great saving of time and labor, 
and contributes greatly to the punctuality of the whole 
community, which is a still farther saving of time and 
capital. 

Besides, we have already shown that when a man 
devotes himself to any occupation, and does nothing else, 
he will acquire a skill which can never be attained by 
him who only practises it occasionally. This principle 
.applies, with full force, to the present case. He, whose 



2G2 BANKS OF CIRCULATION. 

only business it is to loan money, will keep himself, at 
all times, acquainted with the state of the money market ; 
he will ascertain the character and responsibility of the 
individuals who are requesting loans ; he will be the first 
to ascertain the indications of their failure, either in skill 
or in fidelity ; and will, therefore, be the best prepared to 
decide, whether it be necessary to withdraw capital from 
a debtor. This will be especially the case, if there be 
interested in the management of the funds thus collected, 
several men engaged in the general monetary operations, 
and who, therefore, are likely to collect all the informa- 
tion on these subjects, that may, at any time, be afloat in 
the mercantile community. 

Such is the nature of banks, as offices of discount. 
Some of the private banks of Great Britain, are of this 
character. They issue no notes of their own, but merely 
negotiate the bills of other banks, or of the Bank of Eng- 
land. Of the same nature, to some degree, are savings 
banks ; of which the object is, to collect the capital from 
small ov/ners, and loan it out, at interest, for their benefit. 

OF BANKS OF CIRCULATION, OR ISSUE. 

If banks were established on the principles which we 
have suggested, and if the depositors and contributors 
placed, in the hands of the banker, metallic currency, it is 
evident that the bankers or bank would soon collect the 
greater part of the metallic currency in the country. 
Now, were this the case, it is evident that they might do 
a very considerable service to the commmiity, by furnish- 
ing the depositor, a certificate of deposit, which he might 
use, instead of the money Avhich he had deposited. Thus, 
if I had deposited one thousand dollars in a bank in Provi- 
d-enee, and wished to use it in New York ; if their certifi-' 



BANKS OF CIRCULATION. 263 

cate that they owed me so much money, were as good in 
New York as the specie, the carrying of this piece of 
paper, or the sending it by mail, would save all the 
trouble and risk of carrying the specie. If he who wished 
to send the same sum of money to Providence, did the 
same, the exchange of these obligations by the respective 
banks, would perform the whole operation of the ex- 
change. Or, the same might be accomplished, if the 
bank, upon sufhcient security, loaned to me its obliga- 
tion to pay on demand, and allowed me to use this obli- 
gation, in any place where it might be for my interest to 
do so. And, still more readily might this be done, if a 
number of individuals had deposited, in the bank, specie, 
for the purpose of having it loaned, at stated rates, to any 
persons who could offer a reasonable guaranty that what- 
ever was borrowed, would be, at an appointed time, re- 
funded. It is always to be understood, that the bank 
obliges itself, in all cases, to pay these obligations to the 
bearer, on demand, in the precious metals ; and that hence, 
these notes represent the value in the precious metals, 
which their obligation designates. And thus, from the 
nature of the case, a large amount of the money in circu- 
lation, would soon become specie certificates, or notes of 
obligation of the bank. And they would get rapidly into 
circulation, because of their greater convenience for trans- 
portation ; their diminished liability to robbery ; and the 
greater ease, with which they could be identified, in case 
they were stolen. 

But still further. It is manifest that many of these 
bills thus issued by banks, in this condition, would never 
require to be repaid in specie, but would be cancelled by 
an equal amount of similar bills from other banks. Again : 
Of those which required to be so paid, it is impossible that 
that they would all require to be paid, at the same instant. 
And, yet more : As some persons were receiving payments^ 



964 BANKS OF CIRCULATION. 

ill specie, other persons would also be depositing specie, 
which would make good the deficiency which this with- 
drawal occasioned. Hence, from these causes combined, 
it is evident that a bank thus constituted, might, without 
violating its engagement to pay every certificate or bill in 
specie, issue a larger amount of such obligations, than it at 
any time contained of specie in its vaults. And, inasmuch 
as it redeemed every such note on demand, with the pre- 
cious metals, these notes would have, in exchange, the 
same value as the precious metals, every where in the 
immediate vicinity of the bank ; and they might have 
the same value in other places, if this bank were in cor- 
respondence with other banks of the same character, in 
the different places with which its customers transacted 
business. 

Inasmuch as these notes possess some considerable ad- 
vantages over specie ; that is, as they are lighter, occupy 
less bulk, and are equal in exchangeable value to specie, 
they would be commonly preferred. That they are so 
preferred, every one proves, every day, by his own con- 
duct. When we take a check to the bank, and can 
receive for it, either notes of the bank or specie, we never 
take the specie, except in such quantities as may be re- 
quired for small exchanges. When we travel, we prefer 
the bills of the United States Bank, to specie, and would 
commonly give a small premium for them, in preference 
to specie, if they could not be obtained at any other rate. 
From these reasons, it is manifest, that under such cir- 
cumstances, a large portion of the currency in a country, 
when banks were established which had the confidence 
of the community, would become paper, instead of metal. 

Now, banks, in this country, and in Great Britain, 
generally perform all three of these functions. They 
receive and pay out money on deposit, and keep all the 



BANKS IN THE UNITED STATES. 0(55 

accounts necessary to these transactions ; they loan money 
at interest, and collect monies so loaned ; and they also 
issue their own promissory notes, payable in specie, on 
demand. 

We shall close this section, by a brief notice of the 
manner in which banks are created in this country, and 
a statement of their sources of profit. 

Banks, in this country, are chartered incorporations ; 
that is, the privilege of banking is conferred on several 
associated individuals, by a special act of legislation. By 
these acts, banking companies are entitled to certain privi- 
leges, are subject to certain forms of legislative inspection, 
and are restricted, in their operations, within such limits as 
the wisdom of the legislature may see fit to impose. These 
privileges generally refer either to the mode of collecting 
their debts ; or to the limit of the liability of the individu- 
als, in case of failure ; or to the power of issuing bills on 
demand. And the restrictions limit the amount of their 
circulation, in proportion to their actual captital, or their 
specie in actual possession. 

When any number of persons desire to be incorporated 
as a banking company, they present a petition to the 
legislature of the state in which they reside, praying for 
such privilege. If the prayer be granted, they are thus 
incorporated, and the amount of their capital is fixed in 
the act. This sum is divided into shares, or equal por- 
tions, of such amount as may be supposed best suited to 
answer the wants of the community. At a given time 
and place, pubhckly notified, books are opened for sub- 
scription ; that is, every one is allowed to subscribe for as 
many shares as he wishes. When the necessary amount 
is bespoken, the subscribers are called stockholders, as 
the shares are commonly, in mercantile language, called 

34 



266 BANKS IN THE UNITED STATES. 

stock. The stockholders now meet, and choose, from 
their number, certain persons to conduct the operations 
of the bank, who are called Directors, and the whole of 
these together, are called the Board of Directors. These 
directors then choose, from their own number, a President, 
and some person not of their number, asCashier. On these 
two last mentioned persons, the active duties of conduct- 
ing the affairs of the bank depend ; though the directors 
meet, at stated times, for the purposes of general consulta- 
tion, and especially to decide upon the commercial charac- 
ter of those, to whom they are requested to loan their 
money. 

The bank is thus organised. The subscribers are now 
required to pay to the cashier the sums which they have 
subscribed for ; that is, that portion of the amount, which 
each has agreed to invest in the general business of the 
bank. Suppose the capital were one hundred thousand 
dollars, and each share were one hundred dollars, there 
would then be one thousand shares, and might be one 
thousand stockholders. As soon as each one had paid 
the portion for which he had subscribed, one hundred 
thousand dollars would be collected in the banking house, 
and this would be the capital, with which they would be 
prepared to commence their banking operations. 

The manner in which these operations are conducted, 
is something like the following : The bank loans its own 
bills, payable in specie, to those who wish to borrow, 
and receives the notes of individuals, of equal amount, in 
return, and charges them interest, which is paid in ad- 
vance. The payment of these notes is always guarantied 
by some other person or persons, called endorsers. The 
ordinary period of loan, is thirty or sixty days ; at the clos& 
of which time, the notes are required to be paid, either in 
whole, or in part, at the discretion of the directors. 



SECURITY OF BANKS. 2G7 

Hence, if it were necessaiy, the whole afluirs of the bank 
might be closed ; that is, all its bills might be called in, 
and all the notes it has received might be given up, and 
the bank remain as it was when it commenced, with the 
addition of whatever interest it might have acquired, in 
thirty or sixty days. 

Suppose, now, the capital of the bank were all paid in, 
in specie, and that it issued notes only to the precise 
amount of its capital. In this case, there would be a 
double and full guaranty for the payment of all its bills. 
The first guaranty would be the specie in its vaults, equal 
to the amount of all its bills in circulation ; that is, for every 
note it issued, there could be shown an amount of silver or 
gold, equal to what it had promised to pay. The second 
guaranty would be, the notes of the individuals, of sub- 
stantial responsibility, for an amount greater than all the 
bills which the bank has issued, by the interest which 
was deducted from the note when it was received. Thus, 
suppose the capital of the bank to be one hundred thou- 
sand dollars, and that this has all been paid in specie. 
The bank loans one hundred thousand dollars of its notes, 
and receives one hundred thousand dollars' worth of the 
notes of individuals of sound pecuniary ability. The 
bank is then liable to pay one hundred thousand dollars, 
and it has, wherewith to pay it, two hundred thousand 
dollars ; that is, one hundred thousand dollars in specie, 
and one hundred thousand dollars of the notes of indi- 
viduals. I think that every one would be inclined to say, 
that such a bank was not only safe, but even superfluously 
safe. If all the debtors failed, and nothing was received 
for its issues, yet its notes would be safe ; for it would 
still have, in its vaults, sufficient to meet every demand, 
as soon as presented, even if all its bills were presented for 
payment at the same instant. 



Um SECURITY OF BANKS. 

Now, inasmuch as one perfect security is as safe as two, 
and, as this security is more than perfect, it might be 
diminished, and yet the bills of the bank be perfectly 
safe. Thus, it is morally certain, that all the bills of the 
bank can never be presented for payment at the same 
instant. If this can never be the case, as its debtors, are 
continually paying back what they have borrowed, and, 
as it has, always, as much less to redeem, as it has already 
redeemed, it is manifest, that with something less than the 
amount of specie designated by its notes, it may always be 
prepared to meet every demand that may be made upon 
it. Again : If all its debtors failed, it would still have, in 
its specie, if equal. to its bills in circulation, enough to re- 
deem all its issues. But, with any tolerable management, 
its debtors would not all fail. It would be a very unusual 
occurrence, if one half of them failed. The bank would 
be then perfectly secure, if the proportion of its specie 
capital, in actual possession, were sufficient to pay all 
deficits which could arise, from the failure of its debtors. 
Hence, we see, that the security of a bank would always 
be perfect, if it always possessed enough, in specie capital, 
to redeem every bill as soon as it was presented, and also 
sufficient to guaranty the holder, against any injury which 
it might suffer, from the failure of its customers ; that is, 
if there existed this ratio between the issues of the bank, 
and the capital in its vaults, such a bank would be of 
undoubted security. 

If it went beyond this ratio, and just in proportion as it 
went beyond it, there would be danger that its notes would 
not be redeemed in specie ; hence, that they would be of 
imperfect value, or even be valueless, and thus, that the 
holders of them would lose, to the full amount of their 
depreciation. Thus, we see, in general, if the capital in 
specie were equal to the circulation, though all the debtors 
-of the bank failed, the holders of its bills would lose 



SOURCES OF PROFITS OF BANKS. 269 

nothing, but the stockholders would lose all their contri- 
buted capital. If all the specie were stolen, and the bills 
were all paid, the holders would lose nothing, but the 
stockholders would lose all. But if there had been fraud, 
at the commencement, and no capital had been contri- 
buted, if the debtors of the bank all failed, the holders of 
the notes would lose all, and the stockholders would lose 
nothing. And, in general, if the debtors of the bank 
failed, the holders of the notes could lose nothing, unless 
the deficit thus created, were more than sufficient to con- 
sume all the actual capital of the bank. The capital of 
the bank, is the guaranty for the payment of all the notes 
which the bank has taken in exchange for its own bills ; 
and, hence, the holders of these bills cannot suffer, until 
all this capital be first exhausted. 

OF THE SOURCES OF THE PROFITS OF BANKS. 

1. From deposits. As banks are extensively used for 
this purpose, they must have on hand, at all times, a con- 
siderable amount from this source, lying idle. This may 
be considered a part of their capital, which they may use 
in their business. If a bank have, on an average, fifty 
thousand dollars of deposits, it may issue bills to the amount 
of fifty thousand dollars beyond the amount which would 
otherwise be in its power, because, it has this additional 
amount of means wherewith to meet the demands made 
upon it. The first source of profit, is, therefore, interest 
gained on deposits, 

2. From exchanges. As these are to be made between 
different places, and as they must be made in drafts or in 
specie ; if two banks, in different places, undertake to 
transact this business in concert, they may greatly facili- 
tate the rheans of payment between two places. For this 



270 THE UTILITY OF BANKS. 

accommodation, they charge a per centage, varying with 
the rate of the market. This is another source of reve- 
nue. 

3. From interest on notes discounted; tliat is, on its 
regular loans. This is its great source of revenue. The 
manner of this has been already explained. 

4. As, from what has been said, it is evident that a bank 
may safely loan an amount of its notes, greater than that 
of its capital, the interest of this excess, is an additional 
source of revenue. Thus, if a bank have one hundred 
thousand dollars paid in, and issue notes to the amount 
of one hundred and twenty-five thousand dollars, it re- 
ceives interest on twenty-five thousand dollars more than 
its stockholders have deposited. This is an addition to 
its revenue, by its amount, whatever it may be. 



SECTION II. 



OF THE UTILITY OF BANKS. 



In stating the nature of banks, in the preceding section, 
we have, to a considerable extent, unfolded the principles 
on which their utility depends. The subject is, however, 
susceptible of a more ample development. We shall, there- 
fore, pursue it through the present section. 

We have shown that the functions of banks were of 
three kinds : First, As institutiojis of c/epo5?7; tSccondly, 



UTILITY OF BANKS OF DEPOSIT. 271 

As institutions of discount or loan ; and, Third, As insti- 
tutions of circulation. We shall proceed to consider their 
ntility, in each of these three respects. 

I. The utility of hanks, as institutions of deposit. 

The utility of banks, in this respect, is derived from the 
saving of labor. They save the labor of transportation, 
of counting, and of vigilance. Of the manner in which 
this is done, I do not know that any thing further need 
be said. In so far as this is concerned, all that is neces- 
sary to be done, is, so to conduct their arrangements as to 
increase their utility in the greatest possible degree. 

In so far as a bank is intended for a place of deposit for 
the circulating medium of any particular community, the 
arrangements which need be attended to, will at once 
suggest themselves. For instance, its location should be 
such, as to accommodate the greatest number of its cus- 
tomers. Its hours of business should be the same as those 
of the mercantile community. Its affairs should be con- 
ducted with the greatest possible regularity. Mistakes- 
frequently produce the same effect as fraud, and they' 
always present, either to the one party, or the other, a' 
great temptation to it. The physical and moral security 
of the institution, should be as great as possible. Hence,' 
a banking-house should possess every practicable secu- 
rity against fire and robbery ; and, if necessary, should be 
always under the protection of a guard. Such is the case" 
with the Bank of England. The officers of the bank, 
whether chief or subordinate, should be persons of tried 
integrity, and should also be so arranged in respect to 
each other, that collusion should, if possible, be imprac- 
ticable ; and their whole affairs should be so under the 
inspection of those, whose interest it is to detect any fraud, 
that dishonesty might be as difficult as possible. The' 



272 UTILITY OF BANKS OF DEPOSIT. 

chief officers should be men of property, so that their own 
interests would suffer more than they could gain, by any 
violation of faith. 

The necessity of all these provisions will be at once 
apparent. It is for the interests of the community, as well 
as of the bank, that every one should transact his business 
by means of a bank ; that is, that he should receive and pay 
money through means of its agency. But, no one will 
employ this agency, unless he is certain that his money 
will be appropriated as he directs, and that nothing shall 
be lost, either by carelessness or by dishonesty. 

But, banks, as institutions of deposit, are designed also 
to facilitate the payments of money in different places, 
and, in the same manner, and on the same principles, to 
labor in transportation, counting and vigilance, and to 
diminish the amount of the circulating medium neces- 
sary, in order to carry on the exchanges of the commu- 
nity. 

Thus, if a merchant in Boston pay one thousand dol- 
lars into a bank in that city, he sends the note of that 
bank to New York in payment of his goods. If the 
bank in Boston, be in correspondence with one in New 
York, the owner of the draft may apply to that bank in 
New York, and receive the money there, by paying the 
difference of exchange, if, at that time, there be any ; 
that is, the bank at New York buys his bill, and, it 
then possesses one thousand dollars in the bank at Boston. 
If a merchant in New York have one thousand dollars to 
pay in Boston, he again purchases of the same bank, the 
draft on Boston, which it may have bought, perhaps, the 
day before. This is now sent to his creditor, who pre- 
sents it at the Boston bank, and receives his payment 
accordingly- The same result would be accomplished at 



UTILITY OF BANKS OF DEPOSIT. 273 

the bank at either place, bought drafts known to be good, 
but payable by other persons besides the banks. And 
still further, if two banks were well acquainted with the 
resources of each other, and were each confident that all 
the debts of the other would be paid, they might give or- 
ders on each other, for the facilitating of exchange. Thus, 
if A wished to pay money in New York, and a bank in 
Boston were authorised to draw on New York, it might 
furnish him with a draft which would be paid in New 
York, and receive the difference of exchange ; and the 
same operation being performed by the bank in New York, 
each would receive, at every transaction, a moderate per 
centage, and yet add greatly to the convenience of the 
community. 

On this account, I suppose it would be much better, to 
have several banks nearly connected, as the branches of 
a large bank ; than to have them isolated, and independent 
of each other. When banks are, in some measure, respon-' 
sible for each other, they must become acquainted with 
the standing of each other, and will, of course, be disposed 
to check each other's excessive transactions. Hence, they 
will also be more likely to give to each other every reason- 
able credit. When, on the contrary, each one is entirely 
isolated from all the rest, and no one bank either knows, 
or has a right to know the condition of the other ; each is 
naturally fearful of the solvency of the rest ; and thus, 
may not be willing to afford those facilities of exchange, 
which the transactions of commerce require. Hence, 
the price of exchange is liable to rise unnecessarily high • 
and, of course, an unnecessary expense is imposed upon 
the trading community. It is by means of its system of 
branches, and the supervision which it thus exerted over 
them, that the late United States Bank was enabled to 
carry on, so extensively, the business of exchange, with 
great profit to itself, and with great benefit to the eom- 

35 



274 UTILITY OF BANKS OF DISCOUNT. 

mnnity. Were banks, in general, constructed more upon 
this plan, I think it would greatly facilitate the business 
of exchange. 

II. The advantages of banks, as institutions of dis- 
count AND LOAN. 

1. It may be proper to suggest, at the beginning of our 
remarks on this head, that banks add nothing to the capi- 
tal of a country. Capital has been already defined. It is 
either the material on which industry operates, the instru- 
ments with which it operates, or the means of sustenta- 
tion, by which it is supported during the operation. The 
capital of any country, at any one moment, consists of the 
amount of these which it then possesses. Now, it is evi- 
dent, that the collecting this in one place, rather than in 
another ; the loaning of it to one, rather than to another ; 
or the loaning of it, instead of not loaning it at all ; or the 
manufacture of printed or of written promises to pay money 
or any thing else ; can never increase the capital, that is, 
the wealth, or the amount of objects of desire, possessed 
by any country. A man is surely no richer, because he 
Derhally promises to pay me one hundred dollars ; nor am 
I any the richer for his promise. And, if neither he nor I be 
the richer, I see not who else can be the richer for it. And, 
if he actually lend me one hundred dollars, and I return 
it, at the end of the week, if I have used it profitably, the 
capital of the country has taken a diflferent direction from 
that which it would have taken ; that is, it has been in 
my hands, instead of being in the hands of some one else, 
but this is all. The capital is the same, except that my 
industry may have added somewhat to it. Could a nation, 
or an individual, become rich by the issue of promissory 
notes, no one who could write a promissory note, ever 
need be poor. But it is manifest that this is not one of 
the methods by which the capital, that is, the objects of 



THE NATURE OF CREDIT. 275 

desire, is, in our present state, to be increased. This 
subject is so obvious, that it seems really almost unworthy 
of serious consideration. The above remarks, however, 
have been made, because the contrary notion has been so 
frequently maintained, and even so frequently acted upon, 
to the great detriment of the commercial interests of the 
community. No one, who has the least practical acquaint- 
ance with the functions of capital and of money, can can- 
didly reflect upon the subject for a moment, without 
coming to a correct conclusion. 

2. But whilst it is alloAved that banks add nothing to 
the existing capital of a country, it is also true that they 
are capable of rendering the existing capital rtiiich more 
productive. In this manner, the practical result may, to 
some extent, be the same as though they actually in- 
creased the capital of a country. If one million of capital 
be capable, under ordinary circumstances, of producing 
two hundred thousand dollars of annual revenue ; and if, 
by means of any improvement in the manner of its distri- 
bution, it can be made to produce three hundred thousand 
dollars, the annual result is the same as if, under the pre- 
vious circumstances, the capital had been increased to a 
million and a half. And, it is because banks have fre- 
quently thus increased the productiveness of capital, that 
the notion has arisen, that they increase the capital of a 
country itself. 

The manner in which banks may increase the produc- 
tiveness of capital, will then be the subject for our presenj 
consideration. 

Banks increase the productiveness ol capital, chiefly, by 
the facilities which they afl'ord for the extension of credits 
The nature of credit is, however, first to be considered. 



276 UTILITY OF CREDIT. 

" Credit is the term used to express the trust or confi- 
dence placed by one individual in another, when he 
assigns him money or other property in loan, or without 
stipulating for its immediate payment. The party who 
lends, is said to give credit, and the party who horroivs, 
to obtain credit."* 

That the extension of credit, in every manner which 
can be rendered consistent with the safety of the lender, 
must increase the productiveness of capital, may be seen 
from the following considerations : 

1. It is manifest, that the labor of man, without tools, 
must be, in the smallest degree, productive. What man, 
by the mere labor of his hands, without tools, could ever 
maintain a family, or even maintain himself ? Without 
an axe, he could neither cut nor cleave wood ; without a 
hod, he could not even carry mortar. He could add but 
very little to productiveness, and hence, his revenue from 
that which was added, must be reduced to the lowest 
limit. But give him tools ; that is, capital : and the pro- 
ductiveness of his labor, is at once greatly increased. As 
he receives an equitable share of this productiveness, his 
wealth is also increased. Thus, by the use of a small 
portion of capital, both he, and the community ; that is, 
every individual ; are rendered richer. 

2. But this is not all. A man may have skill and in- 
struments, but he may not have the material, on which 
to exert his industry. In this case, his industry and 
instruments will be useless. Thus, a cabinet-maker may 
possess both skill and tools, but if he have no mahogany 
upon which to labor, all his skill will be of no value. If 
he can procure materials, he can, by a week's labor, add 

* M'Culloch. 



UTILITY OF CREDIT. 277 

very considerably to the total wealth, both of the commu- 
nity and of himself. A blacksmith may have skill and 
tools, but if he can procure neither iron nor coal, his skill 
and tools are valueless. Let him possess iron and coal, 
and his industry and skill will not only support him, but 
render the annual revenue of the society much greater. 
A merchant may have skill in the business of exchange, 
which might be a great saving to a whole neighborhood, 
but if he have no means of procuring a stock of goods with 
which to commence exchanges, his skill will add nothing 
to the wealth of the community. And thus, we see, that 
in order for the industry and skill of the community to 
operate most productively, it must be universally united 
with capital. 

But, it may be said, let all these operatives labor in the 
employment of those Avho possess capital, until they have 
acquired sufficient to commence production on their own 
account. This, to a considerable extent, is always done ; 
and, by this means, the productiveness of a country is 
annually increased. It may be proper, however, to show 
in what manner, by a different arrangement, and a wider 
dissemination of the benefits of capital, productiveness 
may be more rapidly increased. 

I. As to Capitalists. 

1. Were this plan universally adopted, it would oblige 
capitalists either to extend their business beyond their 
wishes, or else to leave many laborers unemployed. If a 
capitalist loaned nothing, he must invest all his annual 
revenue in the business of his own profession. Were he 
successful, in this manner, he would, in the course of 
years, be obliged so to enlarge all his means of production, 
that a large part of his affairs must be managed by subor- 
.(dinate agents. 



278 UTILITY OF CREDIT. 

2. The talent for conducting large transactions, is by- 
no means universally possessed. Many men, who are 
•capable of superintending an establishment of ten thou- 
sand dollars per year, would be utterly incapable of con- 
ducting one, of one hundred thousand dollars per year. 
And, in general, in proportion to the number of grades of 
agency necessary to the management of any concern, the 
ratio of profit diminishes. 

3, Suppose capitalists always to employ their own capi- 
tal, the burden of every man's business would increase 
with his years ; and thus, the older he grew, and, of course, 
■the more unfit for business, the more intolerable would 
the pressure of business become. This is unnatural. As 
a man advances in years, and is less adapted to labor, he 
is disposed to retire from it, and to seek for some method 
in which, without active employment, he may reap the 
advantage of his previous industry and frugality. 

II. As to Laborers. 

1. A laborer will work with skill and success, just in 
proportion to the personal advantage which he reaps from 
his own labor. Now, every one must perceive, that these 
inducements will operate with more success, when he is 
laboring with his own capital and reaping all the advan- 
tage of his skill, than when he is laboring upon the capi- 
tal of another, and is paid only at a stipulated price. A 
hundred men, each possessing a capital of two hundred 
dollars, allowing each one to select his own place for labor, 
would add much more to the annual revenue of a country, 
than one hundred men, all laboring in the same place, 
under an employer, who himself owned the whole tAventy 
thousand dollars. 

2. Besides, were capital thus to accumulate, in a fcAv 



UTILITY OF CREDIT. 279 

hands, it would confine the operations of industry to a 
few places, and thus materially add to the cost of produc- 
tions, and diminish the conveniences of the community. 
Many of the trades require to be conducted very near to 
the residence of the consumer. The blacksmith, the car- 
penter, the cabinet-maker, the shoe-maker, the baker, 
and the retail merchant, must reside in the midst of the 
community for whom they labor. Were capital always 
to be employed by those who own it, it would, of neces- 
sity, be collected into large masses, and the consumer 
would lose a great deal of time in procuring the product 
which he needed. The farmer would be obliged to go 
to the city to have his horse shod or his plough mended, 
and thus, the labor of transportation, and the consumption 
of time would be greatly increased. 

From these reasons, I think it evident that the produc- 
tiveness of a country must be greatly increased, by any 
means which shall enable the skilful and industrious, in 
any profession, to obtain the use of capital, by means of 
which, they may labor on their own account, and, in any 
place which presents the strongest inducements of per- 
sonal interest. They will thus produce more abundantly ^ 
and enrich more rapidly, the country, as well as them- 
selves. And, if such arrangements can also be made, 
that those who loan them the capital shall be perfectly 
secure, it will be a mutual advantage to the capitalist and 
to the laborer. While the laborer is improving his con- 
dition, the capitalist is also enjoying, in security, the 
benefit of his former industry ; and thus, without labor- 
ing himself, is enjoying all the advantages of labor. And, 
I believe, that arrangements of this kind are commonly 
found to be more advantageous to a capitalist, than to 
continue in active business. The general opinion of 
mercantile men, is, I think, that men in declining years, 
are more likely to lose, than to gain, by continuing ii:^ 



280 UTILITY OF BANKS OF DISCOUNT. 

business beyond the period of active enterprise. The 
last ten years of a hfe, have frequently been destructive 
of the results of all the labors of the forty previous years. 

The same principles apply to merchants, and to all 
other persons employed in active business. And hence 
we see, in general, that it is by means of credit, that those 
who possess more capital than they wish personally to 
employ, may, without labor, derive from it an equitable 
revenue ; and that those who have less capital than they 
can profitably employ, may procure the use of such capi- 
tal as they wish, and may thus be enabled to enjoy the 
full benefit of their skill and industry. It is thus that a 
poor man, with industry and skill, is enabled, at once, to 
reap all the advantages of riches ; and a rich man, whose 
power of labor is past, to reap, to a considerable degree, 
the advantages of industry and skill. The benefit,- to 
both parties, is great and mutual. And, it is manifest, 
that any institution, which contributes to accomplish such 
a result, must be of material service to the community. 

Now, banks are such institutions. They stand in an 
intermediate place, between capitalists and laborers ; and 
enable both to derive advantage from each other. 

They do this, in the following ways : 

I. They collect together, capital, which would, other- 
wise, be scattered and useless. 

1. This has been, in part, illustrated before. The 
greater the difficulties of loaning, the less will always be 
the amount loaned. If he who has a few hundred dollars 
to loan, is obliged to wait until some one calls for it, it 
will lie, for the greater part of the time, idle. And, if he 
be obliged to observe the circumstances of a debtor, of 



UTILITY OF BANKS OF DISCOUNT. 281 

whom he may know very httle, the time and labor thus 
' spent win frequently be as valuable as the interest he is 
to receive. Hence, a large amount of capital will always 
remain unproductive ; and, consequently, a large amount 
of industry, which might have been rendered productive 
by means of it, will languish. 

2. But this is not all. A large amount of capital is 
always in the possession of widows, minors, and aged 
persons, who are unable to unite with it, that labor which 
is necessary for its productiveness. These persons can 
neither labor with it themselves ; nor are they capable of 
superintending the loaning of it, either safely or profitably. 
Hence, the fear of losing all will deter them from loaning^ 
and they will hoard it, and live upon the principal, until it 
is all spent, and they are reduced to poverty. Thus, the 
property which might have been useful to others, and 
might have supported themselves without any diminution 
of its amount, is, in a few years, dissipated ; and the gains 
of a previous life, instead of being added to the capital of 
a succeeding generation, are abstracted from it for ever. 

3. There is always, in every community, a large nUm-* 
ber of persons who are engaged in active industry, but 
whose gains cannot at present, and sometimes cannot at 
all, be invested in their employment. Such are laborers, 
whose gains cannot be of service to them, until they have 
accumulated a considerable sum. A laboring farmer, who 
saves from fifty to one hundred dollars a year, cannot, 
with this, buy a farm, until he have accumulated the earn- 
ings of several years. He cannot conduct a farm, profita- 
bly, upon borrowed capital, because the income of agricul- 
ture will rarely allow of it. If he can invest these gains as- 
they accrue, and receive interest for them, they will annu- 
ally add to his stock. If he cannot thus invest them, 
they must lie idle, doing good neither to himself, nor tc 

36 



282 UTILITY OF BANKS OF DISCOUNT. 

any one else. The same is the case with mechanics, and 
various other laborers. 

Besides these, there is a very large class of the commu- 
nity whose employment cannot be increased by the addi- 
tion of capital. The merchant can, by investing his annual 
gains in his stock in trade, increase his sales, and, of course, 
his profits. But, how can the physician, or the lawyer, or 
the clergyman, or any person who is paid by salary, do 
this ? Hence, if there be not some means by which these 
annual gains can be conveniently collected and investedj 
they will be either foolishly squandered as fast as they 
arise, or they will be hoarded without any annual profit, 
either to their owner or to the community. 

Now, for these evils, a bank provides the remedy. The 
stock of a bank is all divided into shares, of such amounts, 
that they are within the purchase of most persons who may 
wish to invest their capital. These shares are always for 
sale, at a price regulated by the interest which they annu- 
ally pay. He who has one hundred dollars to invest, pur- 
chases one hundred dollars' worth of bank stock ; that is, 
he invests one hundred dollars in the bank, in the place 
of the person who formerly owned this portion of the 
capital of the bank. He receives interest on this one 
hundred dollars, from the day he purchases it, until the 
day on which he sells it again. When he has accumu- 
lated any thing more, he purchases in like manner. And 
thus, he has a safe place of investment for all his gains, 
where they are both held securely, and without any 
trouble to him, and where they also pay him an annual 
revenue. When he wishes to withdraw these funds, and 
to appropriate them to some other lise, he sells his stock ; 
that is, some one becomes one of the stockholders, instead 
of himself ; and he thus receives back the money which 
he formerly paid in. These shares are, every day, to be 



UTILITY OF BANKS OF DISCOUNT. 26'3 

bought and sold in the market ; and hence, he can, gene- 
rally, invest or withdraw his money, any day in the year, 
at an hour's warning. 

On this account, it will at once be evident, that the 
shares of banks should be of such amount as will best 
accommodate the communities for whose benefit they are 
specially designed. When they are intended for capital- 
ists, they may as well be large as small. But when they 
are for the benefit of those who have but small amounts 
to invest at one time, they should be small. They will, 
in this manner, enable persons of small means, the more 
easily to invest ; and, on account of this increased con- 
venience, as their stock will be more eagerly sought for, 
it will bear a higher price in the market. 

The utility of banks would be still further increased, if, 
besides this mode of investment, they were in the habit of 
receiving small deposits on interest, which might remain 
with them, to be drawn for, at the pleasure of the owner. 
Many persons, having small amounts of property to invest, 
are unacquainted with the process of buying and selling 
bank shares, and thus, either spend their money thought- 
lessly, or allow it to lie idle. Were banks to receive all 
such sums on deposit, and allow for them a lower interest 
than they charge their customers, they might thus con- 
duct a profitable business as the loaners of money for the 
public, and redeem a large amount of capital from unpro- 
ductiveness. This is the practice of the banks in Scot- 
land. 

It is true, that this is accomplished, to a considerable 
degree, by the savings banks. But these might still be 
very useful, by receiving money in smaller sums than 
those received by the bank, and it might remain with 
them, until it became large enough to invest in a bank of 



284 UTILITY OF BANKS OF DlSCOUiNT. 

discount. Thus, both institutions might assist each other; 
and the bank of discount would have this additional advan- 
tage, that it could allow of the withdrawal of money on 
demand, which a savings bank cannot always readily do. 

In this manner, banks collect together the scattered and 
useless portions of capital, and place it in a form in which 
it may conveniently be used ; and they also collect together 
that which would, perhaps, be used, but which, without 
their assistance, would be used in a much less convenient 
manner, both to the borrower and the lender. 

II. Let us now see, in what manner, after this capital 
has been thus collected, banks enable the industrious 
classes to enjoy the benefit of it. 

The most obvious method, in which, without banks, 
the capitalist would assist the laborer, would be to sell 
him goods on trust. Thus, suppose a mechanic wished 
to establish himself in a village where his services would 
command a high remuneration ; he might purchase of the 
dealer in the material which he wanted, as much stock as 
he wished, at three or six months, or a year's credit ; and, 
with this capital, he could commence his business. By 
converting this material into product, and selling it, he 
would be able to liquidate the debt ; and all the surplus 
would be his own. Or, take the case of a wholesale mer- 
chant. Suppose such a merchant to import, into a large 
city, two hundred thousand dollars' worth of goods. If 
he shall wait for the individuals, who may need his 
wares, to come and purchase them, it may be a year or 
two before his sales are completed. There naay, how- 
ever, be fifty retail merchants, of small capital, in several 
of the surrounding towns, who are not able to pay in cash 
for his commodities, but who, if they can obtain them on 
credit, will be able, both to sell them to good advantage 



UTILITY OF BANKS OF DISCOUNT. 285 

to themselves, and also to refund the money, in three, six, 
or twelve months. It will be of advantage to both par- 
ties, the one to sell, and the other to buy, on credit. And 
this is the manner in which very much of this business 
is commonly transacted. 



But when the business of credit is managed in this 
manner, several things are to be considered. 



1. The merchant, who sells in this manner, either 
charges interest from the date of the sale, or from a time 
agreed upon between the parties, or settled by common 
usage. 

2. He knows, that when he sells, in this manner, he is 
liable to lose, either by the want of skill, or of fidelity in 
his debtor. Hence, to cover his risk, he always charges 
considerably higher for his goods, than he would charge^ 
if he sold them for cash. Hence, merchants always have 
a cash, and a credit price, for their goods. 

3. Besides all this, to this mode of sale there is a limit, 
in the ability of the wholesale merchant. If his capital be 
not large enough to allow him to sell his goods on credit, 
he must sell them altogether for cash ; or, if he have capi- 
tal, the extent to which it will allow him thus to trade, is 
limited. This limit will be extended very much, if either 
party can procure a loan of capital from some one who 
has it to spare, and who does not wish to invest it in any 
other business. 

I. Of the Retail Merchatit. 

Suppose the retail merchant, in his own town, be known 
to be a man of skill, industry, and integrity. A local bank, 
knowing his circumstances and his character, will readily 



286 UTILITY OF BANKS OF DISCOUNT. 

loan him a sum of money, at the ordinary rate of interest. 
With this loan, he will be able to make his purchases of 
the importer ; and thus, he uses in his business the capi- 
tal of the bank, instead of the capital of the seller. In 
doing this, there is a manifold advantage. 

1. This capital in the bank, which would otherwise 
have been idle, is bringing in a revenue to its owners. 
This is an obvious saving to the community. 

2. The buyer pays the bank a lower interest, than he 
would have paid the importer. 

3. He procures his goods at cash, instead of credit 
prices ; and hence, he is able to make a greater gain him- 
self, and, at the same time, to sell them cheaper to his 
customers. 

4. The importer, being able to pay cash for his goods, 
can himself import them cheaper ; and hence, there is a 
still farther reduction of their price to the whole commu- 
nity. 

The case of the retail merchant is the same as that of 
the mechanic, or of any other individual, who needs capi- 
tal to unite with his industry. The use of the bank, in 
all these cases, is, to offer its capital to the industrious 
laborer, in the place of the capital of the wholesale dealer ; 
and, as it can loan on better terms, and to the advantage 
of all the parties concerned, the whole community are 
benefitted by all the points of difference. 

II. Of the Wholesale Merchant. 

The case is the same with the importer. He can easily 
sell, with proiit, an amount of goods larger than his actual 



UTILITY OF BANKS OF DISCOUNT. 287 

capital. But if he import his own goods, on credit, from 
a foreign manufacturer, or merchant, to whom he is ahnost 
unknotvn, he must pay him interest, and receive his goods 
at credit prices. Using the capital of a bank where he is 
knoiDii, he can purchase them at cash prices, and thus 
import them more advantageously, both for himself and 
for the community. In this case, as before, he uses capi- 
tal which would otherwise have been unproductive ; and, 
Avhile he pays for it a suitable remuneration, which would 
otherwise have been lost, he is enabled to reap an increased 
profit to himself, while he sells at a less price to the com- 
munity. 

It is in this manner, therefore, that banks quicken the 
industry of a people. They first collect together, and ren- 
der available, all the capital of a country ; and they so use 
it, that every one who needs it, and can give the requisite 
assurance that it will be well used, can obtain it. They 
thus, by giving facilities to the extension of credit, enable 
every individual to reap all the benefits which can arise 
from his industry, his skill, and his moral character. 
Without credit, if he possessed no capital, he would be- 
left to the resources of his simple industry, or simple- 
manual labor. In just so far, therefore, as they tend to 
the extension of credit, they confer a benefit upon the 
industrious. Thus, every one may have the opportunity^ 
so far as the capital of the country will allow, to unite his^ 
industry with capital, and reap the resulting advantage ; 
and, on the other hand, all the capital of the country is' 
enabled to be united with industry, and thus it is all em- 
ployed, in some way, in the business of production. The 
nearer any community approaches to such a state of things- 
as this, the more intense will be its industry, and the 
greater its productiveness. 

And still more. As banks are permanent corporations,- 



288 UTILITY OF BANKS OF DISCOUNT. 

of which the laws and resources are known, they present 
an inducement for the investment of foreign capital. 
This is always an advantage to any country. Capital 
will never be invested, in any country, unless the rate of 
interest in the country where it is invested, is higher' 
than in that from which it is sent. In this case, the 
former country derives the advantage from the difference. 
If money can be borrowed in London, at four per cent., 
and be loaned here, for six per cent., we have the benefit 
of the use of the money, and of two per cent, in addition. 
In this manner, money is constantly borrowed by a new 
country from an old, with great advantage to both, but 
specially to the new country. 

If such be the utility of banks, in this point of view, it 
is of importance that their arrangements should be so made, 
as to loan, on the most convenient terms, to those who are 
able to give proper security. The mode, in this country, 
is by receiving a note of hand, with approved endorsers, 
and made payable at a specified time, say at sixty or ninety 
days. The bank, however, allows no interest on deposits 
made by the drav/er of the note. This mode of transact- 
ing business, answers a very valuable purpose ; but, it may 
be questioned, whether its convenience might not be very 
considerably increased. 

Judging by these principles, it would seem that the 
Scottish banks were conducted more correctly, as well as 
more beneficially to the public, than any institutions of 
the kind at present known. 

1. As offices of deposit, they receive all sums, not less 
than £10 sterling ; and, for such deposits, allow interest. 
Less sums than this are placed in the savings banks, until 
they become sufficiently large to be deposited in a bank. 
These deposits are, generally, made by persons who labor 



UTILITY OF BANKS OF DISCOUNT. 289 

.n agriculture or manufactures. The whole amount thus 
deposited, is equal to about twenty-four millions pounds 
sterhng, or not far short of one hundred and twenty mil- 
lions dollars. This large sum is thus redeemed from idle- 
ness, and added to the productive capital of the country. 

2. They discount notes, as our banks do, but they have 
another mode of loaning, which is called cash credits. 

When a man wishes a cash credit, he finds bondsmen,' 
who promise to indemnify the bank for all that it may 
lose, by lokning to him within a certain sum ; or else he 
places real estate in the power of the bank, to a sufficient 
amount to render it secure within the sum which he 
wishes to borrow. The bank then opens with him a cash 
account, or allows him to draw for any sum within the spe- 
cified amount. He is charged interest only for the amount 
which he borrows. As fast as he is in funds, he deposits 
all he can spare, in the bank, and, for every thing thus 
deposited, he is allowed interest ; so that his interest on 
deposits always diminishes the interest on his debt. Thus 
he borrows and pays, successively ; and, at stated seasons^ 
the accounts are adjusted. 

The advantages of this system, are : 1st. That it en- 
ables an industrious man to procure credit to the amount 
of his real estate, and, hence, to do more business with the 
same capital, than any where else. 2d. That by render- 
ing every deposit valuable, it stimulates him to frugality^ 
3d. It enables the bank to understand, more correctly, the 
state of his affairs, and, hence, to know how deserving he 
is of confidence. 4th. That this may be done with 
greater safety, than in any other mode, is evident from the 
fact, that while the Scottish banks have been liberal in 
their accommodations, and have, by the acknowledgment 
of all, been of the most important service to that country, 

37 



290 UTILITY OF BANKS OF CIRCULATION. 

but one of them has ever been known to fail. These are, 
surely, the best evidences of the wisdom of any practical 
system. 

Such, I suppose, to be the advantages of banks, as insti- 
tutions of discount or loan. 

III. On the utility of Banks, as institutions of circu-- 

LATION. 

I have already shown, in what manner it is possible for 
banks to issue notes for a larger amount than they at any 
moment actually possess, in specie, and that they may do 
so, to a certain extent, with entire safety to the commu- 
nity. Should banks be generally established, and all of 
them adopt this system, as they would naturally do, it is 
evident that there would be in circulation more paper than 
specie ; that is, that the actual circulation would, to a great 
extent, become paper, instead of the precious metals. 

But I have already shown, that a community, in any 
given condition of exchanges, requires no more than a 
given value of coin, for its exchanges. If the amount be 
increased, its value will diminish, and vice versa. If it 
need an amount equal to a million bushels of wheat, no 
more than this can be introduced, and if more be intro- 
duced, its value will fall, till it become equal to a million 
bushels of wheat. 

Now, by issuing paper money, the whole amount Of 
money is increased, and, hence, its price falls. But, as 
every paper dollar is redeemable in silver, its value is still 
equal to that of a silver dollar. Hence, the whole amount 
of cm'rency, silver and paper together, falls in price, so that 
money becomes cheap, and you can buy more abroad with 
a silver dollar, than you can with a silver dollar, at home.- 



UTILITY OF BANKS OF CIRCULATION. 291 

Now, in this state of things, if the paper and coin were 
equally valuable in" foreign countries, either would be ex- 
ported, at pleasure. But, inasmuch as only the metal is 
valuable abroad, this, exclusively, is sent out of the coun- 
try, in the purchase of other articles. And, it will be sent 
out, until the price of the circulating medium at home, is 
reduced to its ordinary price in other countries. 

Suppose that two-thirds could be thus sent away without 
impairing the soundness of the currency at home. Busi- 
ness would then go on as securely, and as well, as it did 
before. But, these two-thirds would procure in exchange 
an equal amount of other capital, by which the wealth of 
the country is by so much increased. In the mean time, 
all the exchanges of the country are carried on by means 
of the remaining one-third, plus the expense of the manu- 
facture and management of the cheaper commodity, paper ; 
that is, the given operation, exchange, is carried on by 
means of an instrument, which costs only about one-third 
of the expense, which the former instrument cost. 

This, then, is the advantage of banks of circulation. 
They furnish to the community a cheaper article of ex- 
change. And the extent of the benefit is easily estimated. 
If the ivhole of the metallic circulating medium were ex- 
changed for paper, we should have the benefit of the inter- 
est of this whole amount. If twenty millions of specie 
were wanted to carry on the exchanges of this country, 
and the whole were exchanged for paper, we should be 
benefitted to the amount of the annual interest of twenty 
millions, or, at six per cent., of one million two hundred 
thousand dollars per annum. If three-fourths of it were 
sent away, our benefit would be equal to nine hundred 
thousand dollars per annum. This is the whole pecu- 
niary advantage of a paper currency, over a metallic. It 
consists in substituting a cheaper Aor a dearer circulating 



292 PAPER AND SPECIE CIRCULATION. 

medium. And, our advantage, supposing the cheaper to 
be equally good, is precisely equal to the interest of the 
difference. 

This deserves to be seriously considered. Banks do not 
create capital. The issuing of paper money, does not ren- 
der money abundant. If it be issued to such an extent, 
that its soundness is doubted, it produces an effect precisely 
the reverse. If, while it is perfectly sound, it be issued to 
an amount beyond the wants of the community, specie will 
be exported, until the equilibrium is restored. If but 
twenty millions of value be needed in exchange, you can 
employ but the value of twenty millions. The only 
benefit of a paper currency, supposing it to be perfectly 
sound, over a metallic currency, is, jirst^ its greater con- 
venience in exchange ; and, secondly, that it enables us 
to use a cheaper instrument instead of a dearer, and to 
employ the amount of the difference in the various opera- 
tions of human industry. 



SECTION III. 

ADVANTAGES AND DISADVANTAGES OF A PAPER CIRCULATION. 

Having thus endeavored to illustrate the nature of a 
paper circulation, it may be of some importance to ex- 
plain, in as simple a form as possible, the advantages and 
disadvantages which appertain to it. 

1. The advantages of a paper circulation. These are 
two, economy and convenience. 



PAPER AND SPECIE CIRCULATION. 293 

I, Economy. 

1. The material in use, in a paper circulation, as we 
have shown, is of much less value than that in a specie 
circulation. A bill worth one thousand ounces of silver, 
may not cost more than two or three cents. Now, in just 
so far as a paper circulation accomplishes the same result 
as specie, and accomplishes it at a less price, the commu- 
nity is the gainer by the difference. 

2. The wear and tear of paper money, as well as the 
original cost, is less expensive than that of silver and 
gold. Were silver and gold transported, as paper money 
now is, the friction would reduce the weight of coin so 
rapidly, that new emissions would be much more fre- 
quently necessary. 

3. But, specially, as the introduction of paper money 
renders a considerable part of the specie formerly em- 
ployed, useless, it may be exchanged for other capital. 
Specie is, in itself, incapable of production. If a part of 
it will answer the purposes of exchange, all the remainder 
may be changed for productive capital. Hence, the gain, 
as has been shown in the preceding section, is equal to the 
amount of this difference employed in productive, and the 
same amount employed in unproductive capital. If five 
millions can be, without injury, dispensed with, the benefit 
is equal to the difference between five millions in produce 
tive and five millions in unproductive capital. 

II. Convenience. 

1. Paper money is much more easily transported. To 
travellers, and men in the ordinary affairs of life, this is a 
matter of considerable consequence. Specie is heavy and 
burdensome. Any amount of paper money which a man 



294 PAPER AND SPECIE CIRCULATION. 

needs, may be comprised in as small a bulk as he chooses. 
When large transfers of money are to be made between 
distant places, the additional convenience and security are 
■still more evident. 

2. Paper money is less liable to robbery. As we can 
render its bulk whatever we please, it can be more readily 
concealed, if we doubt the honesty of our associates. 
Specie is heavy, bulky, and noisy, and, hence, its presence 
is unavoidably discovered. 

3. Paper money, if stolen, is more easily identified, and, 
hence, more easily recovered. A man, by noting the 
number and marks of a bank bill, may safely swear to its 
identity ; but, inasmuch as coin is intentionally all alike, 
this would be impossible in the case of specie. 

These are the principal advantages, so far as I can see, 
of a paper currency. If there be any others, I have not 
been able to discover them. 

On the other hand, its disadvantages are three, viz : 
Its liability to forgery, to fraud, and to fluctuation. 

I. It is liable to forgery. The risk, in this respect, 
from the use of bank paper, is considerable. The se- 
curity from signatures is small, since any good penman, 
by practice, can easily learn to imitate any signature. 
The principal security arises from engraving and paper. 
But, as this depends only upon its excellence, any one, 
who can engrave sufficiently well, can so engrave a false 
bill, that no ordinary examiner can distinguish it from a 
true one. Hence, every one is liable to be imposed upon, 
and to suffer a total loss, to the exact amount of the im- 
position. It is true, that coin is also liable to be falsified ; 
but, the process is much more difficult and expensive than 



PAPER AND SPECIE CIRCULATION. 205 

that of engraving. False coin, being liable to detection 
from its color, weight, and sonorousness, is more readily 
detected. Inasmuch, therefore, as the liability to coun-- 
terfeiting, is greater in paper money than in specie, this 
difference is to be set down in the list of the disadvantages 
with which it is chargeable. 

On this account, banks which issue paper money, are 
under obligations to take every precaution to render their 
bills as little liable to be counterfeited, as possible. The 
greatest security, as we have remarked, is in the excel- 
lence of the engraving, and in the peculiarity of the paper,- 
Hence, they should employ, for the engraving of their 
bills, none but the best artists ; and thus employ talent, 
which would be under no temptation to engage in coun- 
terfeiting. They should never use plates which have 
been so much worn, as to render the impression coarse, 
indistinct, and easily imitated. A bank which, to save 
expense, uses a worn-out plate, enriches itself, at the 
expense of the public. I see no reason why a bank^ 
which issues bills of this description, and thus takes no 
pains to secure the public against fraud, should not be lia- 
ble to pay the false, as well as the true bills. Were this 
done, more care would be used, and counterfeiting would 
become far less common. 

II. Fraud. I have elsewhere shown, that if the capi- 
tal of a bank be all paid in, and the notes which it holds 
against individuals, and which it has received in exchange 
for its bills, be all good, the holder of its bills has two per- 
fectly good securities. Were all the capital stolen, he 
would be safe ; and, were all the notes bad, the capital 
remaining, he would still be safe. We have also shown^ 
that he would always be safe, so long as the capital 
actually paid in, was sufficient to cover any deficiency 
which might arise from a failure of the debtors of the bank. 



296 PAPER AND SPECIE CIRCULATION. 

And, it is manifest, that this is the utmost limit of the 
safety of the holder of the hill. And, with ordinary skill 
and fidelity, it is manifest, that the issues of a bank may 
always be kept within this limit, and thus the holder of 
its notes incur no risk. 

But, neither the skill nor the fidelity of man, is always 
to be trusted. Hence, banks frequently fail, and inflict 
either a partial, or a total loss upon the community. 

1. Banks may fraudulently commence issues, when only 
a part, or when not even any part of their capital has been 
paid in. Suppose that only a part of their capital be paid 
in ; then, the public, instead of having a guaranty^ over 
and above the notes of individuals held by the bank, 
equal to the whole amount of its capital, has a guaranty 
equal only to the amount of the part paid in. If the 
capital of a bank be one hundred thousand dollars, and 
only ten thousand dollars be paid in, and the bank issue 
one hundred and fifty thousand dollars in bills, it pos- 
sesses only a guaranty of ten thousand dollars, to ensure 
the payment of one hundred and fifty thousand dollars 
by the debtors of the bank. In a time of commercial 
pressure, or in case of loss by accident, or robbery, such 
a bank must fail, and the holders of the bills must suffer 
a loss equal to the deficiency by the failure of the debtors 
of the bank, the costs of closing its concerns, and the loss 
of interest until its bills have been paid. 

Again : Suppose that none of the capital stock were paid 
in, but that the stockholders simply gave their notes for 
their shares. The security would then be precisely equal 
to the average goodness of the notes of individuals, received 
by the bank, in exchange for its bills. It would have no 
capital on hand to redeem these bills, and, on the least 
pressure for specie payments, it must fail. The notes of 



PAPER AND SPECIE CIRCULATION. 297 

individuals, in a time of scarcity of money, would be 
worth much less than par ; and, as the stockholders would 
pay for their notes which they gave for shares, by surren- 
dering up the shares for which they gave them, the whole 
loss would fall on the holders of the bills. 

Again : Suppose that, as in the last case', no stock were 
paid in ; that the stockholders were the directors them- 
selves ; and that they accommodated themselves with 
money, without ever requiring notes of each other. Here, 
there would be no security whatever, either in bank 
capital, or in the notes of individuals. In such case, the 
bank must speedily stop payment, and the whole loss of 
its issues would fall upon the holders of its bills. This, 
as well as the last case, is nothing more than a fraudulent 
arrangement for picking the pockets of the public, on an 
extensive scale. It is nothing more nor less, than down- 
right swindling, and should expose a man to the same 
punishment as housebreaking. 

Nor is this danger merely imaginary. The amount lost 
by the public, from the failure of banks, is actually enor- 
mous. Mr. Gallatin, a most able and competent authority 
on this subject, in his pamphlet on the currency, has made 
the following statement, which, from the character and 
accuracy of the author, is entitled to full credit : 

" We have an account of one hundred and sixty-five 
banks which have failed, between the first of January, 
1811, and the first of July, 1830. The capital of one 
hundred and twenty-nine of them, amounted to more 
than twenty-four millions of dollars, stated as having 
been paid in. The whole amount may be estimated at 
nearly thirty millions, and our list may not be complete. 
The capital of the state banks now existing, amounts to 
about one hundred and ten millions. On a total capital 
38 



298 PAPER AND SPECIE CIRCULATION. 

of one hundred and forty millions, the failures have 
amounted to thirty, or more than one-fifth of the whole. 
Of the actual loss incurred, we can give no account. 
There are instances in which the stockholders, by paying 
for their shares in their own notes, and afterwards redeem- 
ing their notes ivith the stock in their name, suffered no 
loss, and this loss fell, exclusively, on the holders of notes 
and the depositors. In many cases, when the whole 
stock has been lost, the holders of notes, nevertheless, 
suffered a partial loss. In the most favorable cases, the 
stockholders lost a considerable portion of the stock, and 
all the debts will be ultimately paid. But, even here, 
there has been a heavy loss to the community, the notes 
having been generally sold by the holders at depreciated 
rates, when the failure took place. We believe that the 
pecuniary loss sustained by government, on loans raised 
during the suspension of specie payments, and from bank 
failures, exceeded four millions of dollars." 

Now, when a currency is liable to such results, from 
fraud or folly ; that is, when skill and integrity must en- 
ter as an element into its goodness, the risk which a com- 
munity sustains in the use of it, must certainly be placed 
in the list of its disadvantages. 

Nor are these evils peculiar to this country. In Eng- 
land, in the year 1793, as we are informed by M'Culloch, 
one third of the country banks stopped payment. And 
we learn, by the daily newspapers, that the failures of 
private bankers, are matters of very frequent occurrence. 
Between the years 1809 and 1830, the number of com- 
missions of bankruptcy issued against country bankers in 
England, was three hundred and eleven. " Exclusive of 
the above, many banks stopped payment, to the great 
injury of their creditors and the public, which afterwards 
resumed them ; while the affairs of some bankrupt con- 



PAPER AND SPECIE CIRCULATION. 299 

cerns were arranged without a commission." Yet, it 
would seem, there are means which may be devised to 
remedy this evil ; for he informs us that, " during this 
whole period, 7iot a single ^Scottish bank gave luay^ 

III. Fluctuation. In speaking of a metalHc currency, 
we had occasion to remark, that it was Inessential to the 
character of whatever was used as money, that it be 
hable, as httle as possible, to fluctuation. Hence, vege- 
table products, of which the amount created was liable to 
vary under the same amount of labor, with the different 
productiveness of seasons, could never be employed as 
money. The reason is obvious. He who contracted debts, 
when money bore one ratio to products, would pay them 
when it bore another ratio ; and hence, though he might 
pay the same nominal amount, yet he would pay twice as 
much m value as he had promised. So, also, he who had 
loaned money while it bore one ratio, and received his pay- 
ments while it was at another, though he might receive 
the same nominal amount, would not receive half the 
amount in value which he loaned. And hence, all civil- 
ilized communities have denied to governments the right 
of altering, or in any manner interfering with, the value 
of coin ; for the reason that this cannot be effected without 
causing a variation in the value of money, and thus inter- 
fering with private contracts. Were this allowable, it is 
evident that credit must be at an end ; because, whatever 
a contract might mean to-day, no one could possibly pre- 
dict what it would mean to-morrow. Hence, all fluc- 
tuation in the value of any substance, renders it, by the 
amount of this fluctuation, unfit for the purposes of a cir- 
culating medium. If gold and silver were as fluctuating 
in value as cotton or wheat, they would, their bulk only 
excepted, be as unfit for the purposes of money, as these 
substances themselves. 



300 PAPER AND SPECIE CIRCUI^ATION. 

Now, these remarks apply, not only to gold and silver, 
but to any thing which may be used as money. They 
apply to silver, as much as to gold, and to gold, as much 
as to silver. If either of these substances were liable to 
great fluctuations in value, we should be obliged to aban- 
don it, and to take the other. If both of them were so 
liable, we should relinquish them both, and find a better 
substance. And so, if paper be used as the circulating 
medium, the case is the same. By as much as it is liable 
to sudden or to great fluctuation, by so much is it unfit 
for the purposes of money. And, when once paper has 
supplied the place of gold and silver, it becomes the cir- 
culating medium as truly as gold and silver were, Avhen 
they supplied the place of copper, or sheep, or cattle. 

Now, the disadvantage to which, as we have said, paper 
money is exposed, is, that it is liable to sudden and great 
fluctuations in value. 

The manner in which this occurs, is easily explained. 

We have already shown that, in order to accomplish a 
given amount of exchanges in a community, a certain 
amount of value is necessary ; and that no more than 
this amount of value can be employed for this purpose. 
If, to accomplish the exchanges of a community at a 
given time, one thousand ounces of silver, equal to one 
thousand bushels of wheat, are necessary, and twice this 
quantity be introduced, the value will remain the same, 
though the quantity varies ; and the result will be, that 
the price of money, in relation to other products, will fall 
one half ; that is, if we gave five dollars for a hat before, 
we shall give ten dollars now, and for other things in pro- 
portion. And, if half the quantity were removed, the 
reverse would be the case ; that is, the price of money 



PAPER AND SPECIE CIRCULATION. 301 

would be doubled ; in other words, if we gave five dollars 
for a hat, formerly, we should give two dollars and fifty- 
cents for it now ; and so of other productions. 

If we we bear this principle in mind, we shall easily 
see the nature of the fluctuations to which paper money 
is liable. Metallic money has a natural price, which is 
not liable to any fluctuation within short periods. This 
price depends upon the cost of mining, which is liable to 
very little variation. He who exchanges a thousand 
bushels of wheat for a thousand ounces of silver, knows 
that it will cost as much to bring an ounce of silver into 
the market, six months hence, as it does now, and hence, 
its cost being the same, it will bring for him as much of 
other products, six months hence, as it does now ; that is, 
if this be the medium of exchange, and its value be not in- 
terfered with by the use of some other substance. Now, 
paper money has no such iiatiurd price ; but the quantity 
of it in circulation depends, considerably, upon the hopes, 
wishes, and anticipations of men. Hence, the quantity 
may vary in almost any amount, and, as the value of the 
whole is not altered by the quantity in use, as the quan-- 
tity increases, the value of each portion must decrease ;• 
and, hence, a paper dollar may be worth twenty-five per 
cent, more or less to-day, than it was a month ago, or 
than it will be a month to come. Hence, though there 
may be the same words written upon the paper, and it be 
called by the same name, yet it means, to him who pays 
it, and to him who receives it, a very difl'erent thing from 
what it did a month ago. And that it does mean difi'er- 
ently, is very evident, from the facts of the case. A 
month ago, he could obtain one hundred dollars for six 
dollars a year; now, he would willingly give ten or 
twelve dollars for the same sum. 

This fluctuation may arise, on the part of the bank, 



^02 PAPER AND SPECIE CIRCULATION. 

innocently or viciously ; from want of skill and fore- 
thought ; or from want of integrity. 

I. Innocently. Suppose that, at a given period, the 
circulating medium in a community is properly propor- 
tioned to the necessities of exchange, and that this me- 
dium, though paper, is perfectly sound ; that is, that there 
exists, in all the banks, sufficient specie to pay all debts 
of the bank on demand, in the precious metals. 

Let, now, fron;i any cause whatever, the productiveness 
of labor be greatly increased, so that a much larger amount 
of annual products is brought into market ; that is, offered 
in exchange. If the amount of money remain the same, 
while the amount of products is increased, the price of mo- 
ney will rise ; that is, every thing will be cheap. As soon 
as products become cheap, every one is anxious to buy. 
Merchants will be desirous to borrow money, or, in other 
Avords, capital, with which to buy, because, when pro- 
ducts are cheap, they may be reasonably expected to rise ; 
and, if the rise in price be greater than the interest paid 
for money, the purchaser may reasonably hope to be able 
to repay what he borrowed, with interest, and yet realise 
"&, handsome profit. Besides, when an article is low in 
any country, then is the time to export it with advantage ; 
and this prospect of increased advantage will induce men 
to borrow, in order to export, in the expectation that the 
unusual profit will enable them to realise far more than 
the interest they have paid for borrowed capital. Hence, 
in such a season, every one is desirous of borrowing, and 
banks can most profitably employ their capital. They 
are called upon to loan, to the utmost extent of their 
power, both by their own interest, and by the universal 
wish of the pubhc. 

Now, in such a state of things, it is not to be supposed 



PAPER AND SPECIE CIRCULATION. 303 

that the directors of banks are endowed with greater pru- 
dence than other men, or that they are not as hkely to be 
influenced by the hope of large dividends. The example 
of one stimulates the others. The risk that one institu- 
tion runs, another will be willing to run. No bank would 
be willing to make a dividend of six per cent., while its 
neighbor was making eight. And when disconnected 
banks, all over a nation, are animated by these principles, 
it is evident that a very large amount of loans must be 
eff'ected ; that is, a very large amount of paper money 
must be issued. But just so fast as, beyond the neces- 
sary amount, the quantity is increased, the value of each 
portion of it diminishes, and thus prices rise ; that is, 
money becomes abundant, and a dollar will purchase no 
more than it would in a time of scarcity. Thus, the 
amount of the circulating medium becomes too great for 
the amount of exchanges, and money is cheaper than any 
other article in the market. 

But, we have before seen, that the cheapest article in 
the market will always be exported. As this is now 
money, money will be exported. But, as the bills are 
redeemable in specie, specie is worth no more than bank 
bills ; and, as the bills are Avorth nothing abroad, the 
whole exportation will be in coin. In a short time, a. 
large portion of it has left the country. The banks then 
find themselves liable to pay in specie, a vastly greater 
amount than they were liable to pay, a month or two 
since, and they find that they have much less specie 
wherewith to pay it ; and the demand for specie still 
continues. They are, of course, in danger of stopping 
payment, and their only means of safety is, in diminish- 
ing their loans ; that is, loaning no more, and requiring 
payment of those who owe them. Hence, those who had 
borrowed, with the hope of paying by means of their 
sales, are called upon to pay, before these sales are effected,. 



S04 PAPER AND SPECIE CIRCULATION. 

and, as the banks refuse to loan, very few are disposed to 
buy. Thus, the debtors of the bank are required to pay 
their debts sooner than they expected, and the means of 
making those payments are curtailed. The money goes 
back into the bank, and does not come out of it. Thus, 
with every day, the quantity of the circulating medium 
is diminished. The scarcity of money increases. The 
price of goods falls, as men will sell for lower and lower 
prices, rather than lose their credit. Every man, from 
necessity, presses his neighbor, and the bank, from the 
same necessity, presses thern all. And thus, in a few 
months, the amount of circulating medium is greatly 
diminished ; and money is worth twenty-five or fifty per 
cent, more than it was a short time ago. He who agreed 
to pay one thousand ounces of silver, when one ounce of 
silver was worth a bushel of wheat, pays it now, when it 
is worth a bushel and a half of wheat ; that is, though he 
pay the same nominal amount, he pays fifty per cent, 
more in value. 

The result of such a state of things depends, of course^ 
upon the degree of the excess of these issues. If this 
fexcess have not been great, by means of mutual forbear- 
ance, the scarcity passes away ; that is, holders of pro- 
duce, being obliged to sell or to fail, sell at reduced 
prices. Thus, the price of money rises, and it becomes 
profitable to import it. It is then imported ; the banks 
kre thus enabled to discount ; and things go on again, as 
iisual ; with, however, a severe loss to those who have 
|)urchased when goods were at high prices. 

But, it is not always thus. Sometimes the pressure for 
money is so great, that those who have purchased pro- 
ducts with borrowed capital, cannot sell them fast enough 
to make their payments. These are obliged to stop pay- 
ment, or become bankrupts, and assign their effects to 



PAPER AND SPECIE CIRCULATION, 30S 

their creditors. But these were debtors to many others 
who were depending on the payment to be received from 
them, to pay their own debts. These, being disappointed 
in this expectation, also fail. Their faihu'e leads again to 
the failure of others, and the panic becomes general. No 
one dares to trust his neighbor, and the banks dare not 
trust any one. An universal crash of mercantile credit 
succeeds, and none are able to withstand the shock, save 
those of the heaviest capital, and of the greatest financial 
ability. 

This, however, at length works its own cure. When a 
debtor fails, he assigns his property to his creditors ; that 
is, he pays them in kind, instead of in inoney. Hence, 
this being done, his need of money is over, and, by so 
much, diminishes the demand. His property is sold, at 
any price it will bring. This depresses, still more rapidly, 
the price of goods ; that is, raises the comparative value of 
money; and hence, it will be the more readily imported. 
As soon as these causes have had time to operate ; that is, 
diminished demand and increased supply ; the equilibrium 
is restored, and credit is established on its ordinary basis. 

In this manner, fluctuation may arise innocently. And 
every one knows that such fluctuations are constantly 
occurring in the mercantile world. But what occurs thus- 
innocently, is liable to occur viciously. 

n. Viciously. . A bank, established in a town remote 
from the ordinary channels of business, or the banks in 
any one place, if combined together, as they furnish the 
paper money which is used for all the common purposes 
of exchange, have, to a considerable degree, the monopoly 
of the article in the market. Hence, by loaning very freely 
at one time, they may bring the whole district into their 
debt. When this is the case, if they see fit to curtail their 

39 



306 PAPER AND SPECIE CIRCULATION. 

discounts, they may reduce the amount of circulating me- 
dium, and raise the price of money as much as they will. 
They may thus, by enforcing payment, render half the 
population bankrupt, and possess themselves of their 
estates, at half price ; or else oblige them to pay double 
or treble the usual per centage of interest. That such 
events have occurred, is, I fear, too much a matter of 
history. And it has given rise to a frequent and unwar- 
rantable prejudice against banks in general. 

While, however, all this is admitted, it deserves to be 
remarked : 

1. That these disadvantages of fluctuation, both from 
unskilfulness and from fraud, do not belong exclusively 
to banks, but are liable to exist under any circumstances, 
in which money is loaned and borrowed. Were there no 
banks, and were money to be loaned by private capitalists, 
and even to be loaned in specie, the same inconveniences 
would be liable to result ; for men are always tempted to 
borrow to-day, more than they will be able to pay to- 
morrow. And it is evident that collusion, for the sake 
of raising the rate of interest, is at least as liable to occur 
between individual money-lenders, as between banks. 
It is my impression that it more frequently occurs, inas- 
much as it is more difficult of detection. 

2. The blame, when such a state of things as has been 
described, exists, is always laid upon the banks. This is 
manifestly unjust. It belongs to the borrower, just as 
much as it does to the lender. Men are very willing to 
borrow, but they very commonly call upon the commu- 
nity for great commiseration, when they are obliged to 
pay. I by no means object to the extension of any com- 
miseration which may be convenient, but it would be a 
very inconvenient extension of it, if it released a man 



PAPER AND SPECIE CIRCULATIOiN. 307 

from the obligation to refund what he had borrowed, and, 
by the use of which, he has ah-eady, perhaps, reahsed a 
handsome revenue. The bank, by enforcing payments 
in a time of pressure, is really doing a great service to 
the community. This is evident. If the debts due to 
the banks were not paid, the banks would fail. In this 
case, not only the stockholders themselves, but every one 
else would be ruined. So that, if, by their exacting 
punctuality, some persons fail, it is better that a few 
should lose, than that the whole community should be 
ruined. 

3. Again : In a time of scarcity, banks are sadly abused, 
because they will not loan more money. A bank, if it 
be honest, and mean to pay its debts, has its limit, beyond 
which it cannot safely pass, as truly as an individual. 
When it has arrived at this limit, its loans must cease. 
A merchant, who has involved himself in large transac- 
tions, expecting that he could borrow as much as he chose, 
is now disappointed, because his expectations are not 
realised. But what reason has he to complain ? The 
bank never promised to lend him, when it had nothing 
to lend; nor to ruin itself, for the sa.ke of saving him from 
the consequences of his own headlong improvidence ; 
specially, when by doing this, it must involve, not only 
itself, but him also in ruin. The bank was no part}?- to 
his engagements ; it derives no benefit from them, and it 
is under no obligation to enable him to fulfil them. The 
only remedy for these evils manifestly is, for both parties 
to be willing -to grow rich more slowly, and thus to 
assume less formidable risks. When a whole commu- 
nity has run into transactions beyond its means, and has 
become embarrassed, there is very little gained by the 
abuse of banks and of bank directors. 

But, whatever may be the advantages or disadvantages 



308 PAPER AND SPECIE CIRCULATION. 

of a paper currency, one thing is certain, that it has, in all 
actively commercial countries, taken the place of a specie 
currency. This is a sufficient reason to believe that it is 
the more convenient circulating medium. It would not 
be so universally chosen, unless it were found to answer 
a better purpose than specie ; and, if it be found to answer 
a better purpose, it ought to be chosen. 

If these remarks be just, there will follow several very 
obvious conclusions. 

1. That to lend money, is just as necessary to the good 
of the community, and is, therefore, as innocent and as 
honorable, as to borrow it. 

2. That an institution, organised for the purpose of 
lending money, is, so far as its object is concerned, as 
beneficial to the community, as innocent, and as honorable 
as any other institution. 

3. That a lender of money is liable to be dishonest and 
unskilful ; but that a borrower of money is also liable to 
be dishonest and unskilful. 

4. And hence, that the one, as much as the other, is 
entitled to all the benefits of equal laws, and the fair and 
unbiassed execution of them. If a bank conduct dishon- 
estly, this is a reason why it should be dealt with accord- 
ing to just and equitable laAv ; but it is not a reason why 
all the capital of the country should be oppressed, and 
every capitalist insulted. A carpenter may be dishonest, 
and this is a reason why he should be dealt with accord- 
ing to just and equitable law ; but it is no reason why 
every carpenter should be oppressed, and his calling made 
a cause of opprobrium. The principle which applies to 
the one case, applies equally to the other. 



AGENCY OF GOVERNMENT. 300 



SECTION IV. 

OF THK AGENCY OF SOCIETY, THAT IS, OF GOVERNMENT, IN 
RESPECT TO A PAPER CIRCULATION. 

I have already remarked, when treating of specie circu- 
lation, that coin was employed as a circulating medium, 
not in consequence of the act of a government, or of the 
stamp which it bore, but simply in consequence of its 
adaptedness to be employed for this purpose, and of the 
universal desire of the community so to employ it ; and 
also, that the whole agency of the government is pro- 
perly limited to the making of those arrangements, which 
would enable it to accomplish this purpose the most suc- 
cessfully ; that what substance a community should em- 
ploy, is none of the concern of the government ; its 
only concern is, so to prepare the substance employed, 
that it may be used with the greatest common advan- 
tage. 

Now, the same remarks manifestly apply to whatever 
'may he used as a circulating medium, whether it be gold 
and silver, or paper. Hence, 

1. A government has no right to interfere with this 
question, and enact any law, or take any measures in 
regard to it. If the people choose to use a paper cur- 
rency, instead of a metallic currency, they have a right 
to use it, and no one, either individual or associated, has 
any right to control that use. If I present a check to a 
bank, and they offer me in payment either specie or bills, 
and I choose to take their bills, it is a matter wholly of 
my own concern. I ask permission to make this choice, 



310 AGENCY OF GOVERNMENT. 

of no one on earth. If I have a thousand dollars to pay 
in New Orleans, and I choose to take the bill or the draft 
of a bank, and send this in payment instead of the thou- 
sand dollars in silver, and my creditor receive it in pay- 
ment, if both he and I are satisfied, no one has a right to 
interfere. And, if any one, whether individual or society, 
whether government, judicial, legislative, or executive, 
see fit to interfere, my only and sufficient reply to each 
and to all of them is, that it is, distinctly and particularly, 
none of their business. 

2. But, although a community may choose a paper, 
instead of a metallic currency, and although they have a 
right to choose it ; neither any community, nor any indi- 
vidual of a community, chooses either a loorthless or a 
fluctuating currency. While, therefore, a government 
has no right to enact that a currency shall be any thing 
else than the people wish it to be, they have a right to 
take all proper means to make it such as the people wish 
it to be. Hence, 

1. They have a right to take such means as will be 
likely to give all reasonable security to a paper currency. 
These means have respect, in general, to the liability of 
directors and stockholders to redeem their bills. In what 
manner this security can be best etfected, it must be left 
to practical men to decide. In some cases, all the property 
of all the stockholders is rendered liable for the debts of 
the bank. This would coriimonly be a perfect guaranty. 
In other cases, I believe, the property only of the directors 
is held liable. In what way soever security can be best 
and most equitably effected, I think a government has a 
right to efi"ect it. 

2. A government has a right to take all reasonable 
means to diminish the fluctuation of a paper currency. 



AGENCY OF GOVERNMENT. 311 

We have seen that, inasmuch as a bank promises to re- 
deem its bills in specie, and as hence, the amount of paper 
in circulation must always depend upon the amount of 
specie in a country, the fluctuation in the amount of paper 
must arise from fluctuation in the amount of specie. 
Hence, also, this fluctuation will always be less, when 
the proportion of specie to paper is great, and vice versa. 
The best method, therefore, of preventing this evil, is, so 
to construct the currency, that the pr6portion of specie to 
paper shall be too large to be afl'ected by any thing but 
large and long continued exportations of the precious met- 
als. This result maybe easily efl'ected by the prohibition 
of the issue of small bills. This will, by necessity, place 
in the hands of ev^ery individual, specie for every amount 
which he may hold of less value than the lowest note 
issued. Were no bank in this country to issue notes of 
a less denomination than five dollars, most of the sums 
held by individuals, in notes of one, two, and three dol- 
lars, would be in silver. If every individual of the twelve 
millions in the United States, possessed two dollars more 
in specie than at present, this Avould amount to twenty- 
four millions more of specie than we now possess. This 
would, of itself, be sufficient to prevent the evil arising 
from any ordinary fluctuation. 

In addition to this, I suppose that an exact account' 
should be kept, and at short periods made public, of the 
amount of specie imported and exported. This would 
give to the banks, timely notice of the danger, and, at 
the first intimation of excessive issues, they might curtail 
their discounts, in season to avert the evil before it became 
excessive and remediless. 

So far as I can discover, the power of a government 
over a paper currency, is conferred solely for the accom- 
plishment of these two objects ; and, of course, it is re- 



312 AGENCY OF GOVERNMENT. 

stricted to the accomplishment of these two objects. A 
government has no right to interfere with it, for any other 
purpose. If it do interfere, such interference is manifest 
usurpation. It has, for instance, no right to interfere with 
the currency, because the people import too much, or be- 
cause they import too little, because they buy too much 
land, or because they buy too little land, because they 
over-trade, or because they under-trade. Its power was 
conferred for no such purpose, and to use it for such pur- 
pose, is usurpation. To all such interference, the proper 
answer to be given by the individual to the government, 
is, that all this is none of your business. 

Nor, is the principle, in this case, at all affected by the 
patriotism from which such interference proceeds, or the 
paternal solicitude by which it may have been dictated. 
The parental authority and the parental responsibility 
cease, when the child has become of age. And whoever 
may assume to be the Father of his coimtry, it surely is 
not too much to claim for the people of these United 
States, that they have at least attained to the period of 
majority. 

But, other grounds for legislative interference with bank- 
ing institutions are assumed, which, if correctly assumed, 
are of a very extraordinary tendency. Some of these, it 
may be proper for us briefly to consider. For instance, 
it is said, that banks are the creatures of the legislature ; 
and that bank directors are the agents of the legislature ; 
and, therefore, that a legislature may rightfully exercise 
over them any authority which it chooses ; and may im- 
pose upon them such laws as it sees fit. Such an 
assumption as this, deserves at least a passing notice. 

1. It is asserted that a, bank is the creature of the legis- 
lature ; and, thei'efore, that a legislature may rightfully 



LEGISLATIVE POWER OVER BANKS. 313 

impose upon its creature such laws, and subject it to such 
jurisdiction, as it pleases. 

The assertion is somewhat figurative. What is meant, 
when it is said that a bank is a creature of the legislature ? 
In what does a banking company differ from a banking 
individual ? The only difference, that I can discover, is, 
that one is incorporated by a legislative act, the other is 
not. 

What, then, is an act of incorporatio7i ? It is merely 
a power granted by a legislature, to several individuals, 
to do, as a society, some innocent act, which they may 
thus do more conveniently, but which any one of them 
might, if he saw fit, do without any act of the legisla- 
ture. I say some innocent act, for what is not innocent, 
should be allowed neither to individuals nor to societies. 

The necessity of such a provision is manifest. Many 
innocent purposes can be accomplished, only by many 
persons associated together. Such are purposes of charity, 
of science, of internal improvement, and many others. 
Without corporate powers, persons so associated could 
neither hold property, nor enforce any regulations upon 
each other ; and, besides, without them, they could not 
be known in law, nor could a creditor have any claim 
upon the property which they might hold. Hence, when 
individuals wish to be associated for any innocent purpose, 
they may claim an act of incorporation as a right ; and it 
is necessary, for the protection of the community, that it 
should be granted. And hence, from both of these con- 
siderations, it is incumbent upon a legislature to grant it. 
The simple principle involved is this : Is this an inno- 
cent means of promoting my own happiness ? If it be, 
society is under obligation to afford it to me. 

40 



314 LEGISLATIVE POWER OVER BANKS. 

Sometimes, the corporate power is conferred by a sepa- 
rate act, in every individual case ; at other times, a gene- 
ral law is passed, empowering any individuals to become 
a corporate body, by conforming to specified conditions. 
Under the latter case, come the laws of partnersliips in 
general ; or, more particularly, the law of limited part- 
nerships, of the State of New York. By this last act, any 
number of individuals may unite in business, and be liable 
in no greater amount than they have contributed ; that is, 
to all intents and purposes, become a corporation, by com- 
plying with certain conditions. Such is also the case with 
ecclesiastical corporations in that State. 

Now, in what manner soever this is done, its effect is 
simply this : It gives to certain persons associated together, 
under certain circumstances, the power to act in the same 
manner as an individual might act, and places them under 
the same responsibilities as those under which an indi- 
vidual is placed. This is the meaning of an act of incor- 
poration. And to make heavy charges, and exact bonuses 
for the passing of such an act, is unjust and oppressive. 
A man might as well be charged for the right of trial by 
jury. 

This, then, is the meaning of an act of incorporation, 
and this is what is really meant by the figurative and 
mysterious terms, "a creature of the legislature.^'' If, 
then, a legislature possess unlimited power over a hank, 
because it has received an act of incorporation, it possesses 
the same unlimited power over all its creatures ; that is, 
over every thing that is incorporated. If the power exist, 
and exist for this reason, it exists in every case to which 
this reason applies. Thus, he who owns a manufactory 
alone, may conduct it as he pleases, and buy and sell 
when he chooses ; subject only to the ordinary laws of 
the land. But, if ten men become incorporated, as a 



LEGISLATIVE POWER OVER BANKS. 315 

manufacturing company, they are under the unlimited 
power of the legislature ; and the legislature has an un- 
controlled right to say when, and where, and of whom 
they must buy ; and when, and where, and to whom they 
must sell ; or whether they may buy or sell at all. Or, 
again : An individual has the right to worship God as he 
pleases. But, if several individuals wish to unite together 
in the worship of God, and, for their own convenience, 
desire to be incorporated for the promotion of this object, 
their rights of conscience cease ; and, after they have 
erected their house of worship, a legislature may shut it 
up, command them to worship when and how it pleases, 
or may command them to worship Mahomet or Jugger- 
naut ; and all this is no oppression, but is a matter of 
simple, honest, common-sense justice ; because these indi- 
viduals have, for their own convenience, and for the secu- 
rity of others, become in law, a corporate body ! 

But even this is not all. Legislation never confers any 
right whatever ; it only confirms those rights which pre- 
viously existed. A legislative act can confirm me in the 
possession of a house which is my own property ; but it 
can give me no right to take possession of a house which 
is the property of my neighbor. In the case of corpora- 
tions, the same principle holds. A legislative act, only 
defines and establishes for several individuals, a right 
which they previously possessed. But the case is the 
same with almost ail the rest of our possessions. We 
hold them under laws by which our right is defined and 
established. So that, upon this principle, every man is 
the creature of the legislature ; that is, a legislature is the 
fountain of all power, the creator of all right, and deals 
out to its creatures and vassals, whatever of liberty or of 
possession it sees fit to confer. This is, surely, a novel 
doctrine to advance in the audience of a free people ; 
and whenever it is advanced, the time has manifestly 



316 LEGISLATIVE POWER OVER BANKS. 

arrived, for a people which intends to contmue free^ to 
turn their attention to tlie consideration of first principles. 

The simple truth in the case must be at once apparent. 
An act of incorporation, has no other effect, 'per se, than to 
place a society under the same protection as individuals, 
and subject it to the same responsibilities as individuals ; 
that is, to place it under the common and universal laws 
of the land. If, together with this, a corporation enters 
into a contract with the legislature to do certain acts, this 
is another affair, and is subsequent to, and different from, 
the act of incorporation. By such contracts, both parties 
are equally holden. But this makes the corporation no 
more a creature of the legislature, than it makes the legis- 
lature a creature of the corporation. A legislature may 
agree with a contractor to build a wall ; but this makes 
the builder in no respect a creature of the legislature ; nor 
does it give them power over him in any other respect, 
than to oblige him to fulfil his contract, according to the 
laws of the land. 

But it is also asserted, that bank directors are the agents 
of the government, or of the legislature, and hence, that 
they are under the unlimited control of the government, 
which is the principal. The reason for this assertion is, 
that the government has the right to control the circu- 
lating medium ; that paper money is the circulating me- 
dium ; that bank directors issue paper money ; and that, 
therefore, they are under the control of the government. 

To this, it may be replied : 

1. The control of the government over the circulating 
medium, is limited in degree; and even loithin this de- 
gree, it is limited by the object for which it may be 
'exerted. A government has a right to enact such laws 



LEGISLATIVE POWER OVER BANKS. 317 

as may insure the payment of the debts of a bank, as well 
as of all other debts, and as may prevent excessive fluc- 
tuation in the circulating medium j that is, they have a 
right to take care that the circulating medium be sound 
and co7ivetiiejit, but, I see not that they have any other 
right over it. And this right is equally limited, whether 
the circulating medium be paper or money. 

2. Suppose bank directors to issue this circulating me- 
dium, and that, on that ground, they are under the con- 
trol of a legislature ; they are then under its control only 
ivithin the limits, and for the jourposes above specified ; 
that is, they are to be placed under the general laios for 
the regulation of the circulating medium. To exert any 
other poiver, or to exert a power for any other purpose, is 
tyranny. 

3. But let us inquire in what sense bank directors are 
agents of government. The government, in their case, 
as in many others, requires, and has a right to require, 
that, in the conduct of their business, they shall conform 
to certain principles, made necessary for the good of the 
whole. But does this render them agents of the govern- 
ment ? He who sells gunpowder, is obliged to sell it 
under special regulations ; but is he, on this account, an 
agent of government ? Every man, who buys or sells at 
all, buys or sells under some regulations of a legislature ; 
but is he, on this account, their agent, over whom they 
have the right of unlimited control ? 

But, take a still more analogous case. Suppose an i7idi~ 
vidual, or a mining company, to obtain from their mines, 
one hundred thousand dollars a year. This they appropri- 
ate to the business of loans. They have, however, no right 
to coin it themselves, but must have it coined at the mint ; 



31« LEGISLATIVE POWER OVER BANKS. 

that is, if they be a company, they must be incorporated, 
in order to carry their purposes into effect ; and they must 
carry them into effect, subject to such rules as the good of 
the whole may demand. But does this render them, or 
their directors, the agents of government? or does this 
give to the government any other power, than that which 
it exercises over any other individual ? 

Suppose, now, several individuals have obtained one 
hundred thousand dollars in any other way than by 
mining, and that they wish to employ it in the business 
of loaning. They are under obligations to conform to the 
general laws made for the regulation of the circulating 
medium, but this is all. They do not, in this manner, 
become the agents of government, any more by loaning, 
than by doing any thing else. And suppose that their 
customers prefer to borrow paper, instead of metallic 
money. If they issue paper, they are under obligation to 
issue it in obedience to the laws enacted for the purpose 
of insuring its goodness and stability ; but they are not, 
on this account, the agents of government, nor has the 
government any more power over them than it has over 
any other individuals. It seems to me, therefore, that 
the second assertion, namely, that bank directors are tlie 
agents of the government, is wholly gratuitous. 

But, it is said that the banks have a monopoly of this 
article, money ; and that, therefore, they are, of right, 
subject to particular legislation. To this, I reply ; who 
creates this monopoly? Certainly not the banks, but the 
legislature themselves. If the legislature refuse banking 
privileges to those who deserve them, or grant them under 
such terms, that but few persons can accept of them, and 
thus diminish the amount of banking capital, and render 
it inadequate to the wants of the community, they ai'e 
the authors of the monopoly ; and they may not plead 



LEGISLATIVE POWER OVER BANKS. 31!? 

their oicn wrong, as an excuse for injustice.* Were they 
to oblige a shoemaker to pay ten thousand dollars for the 
privilege of exercising his profession, and then, because 
there were but one or two shoemakers in a city, under- 
take to regulate his business, interfere with his con- 
cerns, and fleece him over again, on the ground that he 
possessed a monopoly ; we should speak very mildly of 
such legislation, when we called it oppression and tyranny. 
He would very naturally say : " I do not ask you for your 
monopoly. It is all of your own imposing. It is a crea- 
ture of the legislature. Let every one who chooses 
make shoes, subject to the common laws of the land ; 
and both the monopoly, and your reasons for interfering 
with me in consequence of it, will cease together." And 
the case is the same with banks. Let all banking be 



* The fact, no less notorious than disgraceful, I fear, is, that, in many 
of our States, bank charters are granted or denied for purely political 
reasons. They are reserved as the reward for services done to the 
dominant party. Hence, one half of the community at once, is, by this- 
policy, excluded from the privilege of employing their capital in this 
manner. The charters thus granted, are frequently granted, not to 
those who are possessed of the necessary capital, but to those who have 
promoted an election. It is manifest, that neither activity nor skill, in 
political intrigue, will add any thing to the value of a bill, or afford any 
guaranty for the honest management of a bank. If, however, as is fre- 
quently the case, the applicants do not wish to hold the shares them- 
selves, they sell them at an advance, before any of the capital has been 
paid, to persons of the other party. These last, therefore, are obliged to 
pay this advance, as a bonus to those who have obtained the charter; 
and thus, their property is taxed at the outset, to reward the industrious 
partisan. This advance, by its whole amount, reduces the value of 
banking capital, and prevents men from so investing their property. In 
this manner, the monopoly is created; and thus, very commonly, are 
spurious banks brought into existence. It will be found, I believe, in 
the greater number of instances in which fraud has been detected in 
the management of banks, that they have been banks, which have been 
decidedly partisan in their character. The evils resulting from this 
system, are, however, all charged upon banks and bank directors. No 
one thinks of arraigning the legislature, from which all these evils truly 
emanate. 



320 LEGISLATIVE POWER OVER BANKS. 

governed by principles which shall insure the security of 
the community, and then let banks be multiplied at will. 
If they yield more than an average profit, they will thus 
be increased, until their profit is reduced to that of other 
business. If they yield less, they will be diminished, until 
they merely supply the wants of the community. Thus, 
the monopoly, and the reason for oppression founded on 
it, will terminate together. 

I have pursued this subject, to a greater extent than I 
should otherwise have done, were it not that a very gene- 
ral disposition exists, and has always existed, to interfere 
with the rights of capital ; and because no country can 
long be prosperous, where these rights are not respected. 
Men too frequently assume, that capital, devoted to the 
purposes of loaning, is owned by the rich ; that, by over- 
taxing and oppressing it, the rich only suffer ; and, as 
the rich are always the minority, they must bear it, 
without any redress. Now, setting aside the equity of 
such a notion, it is still proper to remark, that there is 
nothing which so readily eludes the grasp of oppression, 
as capital of this kind. It is, of all capital, the most easily 
transferred. If oppressed, it will be transferred to more 
congenial climates ; the industry of the country from 
which it has been removed will languish ; its population 
will diminish ; and the majority will find, too late, that 
the blow which was aimed at the minority, has recoiled 
upon themselves. There is no better policy, either for 
nations or for individuals, than strict and even-handed 
Justice, 



BOOK THIRD, 



41 



BOOK THIRD. 



DISTRIBUTION. 

We have seen that, in order to the creation of vakie, it 
is necessary that labor be united to capital. In some cases, 
both of these are the property of the same individual ; that 
is, the same person both owns the capital and performs the 
labor. In by far the greater number of instances, however, 
they are the property of different individuals ,• that is, one 
person owns the capital, and another person performs the 
labor. As, when the same person owns both labor and 
capital, the whole increase of value becomes his exclusive 
property ; so, when these belong to different individuals, 
the value belongs to them in common ; that is, a share of 
it is the portion of each. 

If, then, profit arise from any operation in industry, 
which has been the joint result of the labor of one man, 
and the capital of another man, it is a matter of some con- 
sequence to ascertain the principles, on which the division 
of this profit, or the distribution, shall be effected. And, 
besides, in every important operation, a great variety of 
laborers, is, of necessity, employed ; and of these labor- 
ers, the skill and talents are very dissimilar. To these 



324 DISTRIBUTION. 

different persons, very different proportions of the profit, 
equitably belong. And, also, the value of the capital 
thus employed, may be different at different times, and in 
different occupations. Hence, there will arise a difference 
in the proportion of profit which shall, at different times, 
be assigned to a given amount of capital. And, if it be 
said, that the remuneration in these cases is always 
arranged among men by mutual consent ; it may be still 
important to ascertain the principles, on which this mu- 
tual consent is founded. 

This book would, therefore, naturally be divided into two 
parts : First, Wages, or the price of labor; and, secondly, 
Interest, or the price of capital. But, inasmuch as Land 
is a form of capital, in some measure peculiar, it may be 
more convenient to consider it separately. We shall, 
therefore, divide the present book into three chapters. 

I. Wages, or the price of Labor. 

II. Interest, or the price of Moriey. 
in. Rent, or the price of Land. 



CHAPTER FIRST. 

OF WAGES, OR THE PRICE OF LABOR. 

In this chapter, I shall consider, 1st. The general prin- 
ciples of wages ; and, 2dly. The special circumstances, 
by which those principles are modified. 



SECTION I. 

THE GENERAL PRINCIPLES OF WAGES. 

The price of any thing, is its exchangeable value, ex- 
pressed in the form of money. 

Exchangeable value, is cost, plus the effect of supply 
and demand. 

In order, therefore, to understand the exchangeable value 
of labor, we must consider, 1st. Its cost ; and, 2dly. The 
effect of supply and demand upon it. 

I. Of the Cost of Labor. 

Labor may be divided into two kinds: 1st. Simple 
labor, or that which is unconnected with previously ac- 



326 GENERAL PRINCIPLE OF WAGES. 

quired skill ; and, 2dly. Educated labor ^ or that, in which 
industry is combined with the results of previous educa- 
tion. 

First. Of Simple Labor. 

In order to produce this, all that is necessary is mus- 
cular strength, resulting from a properly formed body, 
and a sound mind, in ordinary health. 

But, in order to the production of health and muscular 
strength, it is necessary that this human being be supplied 
with food, clothing, shelter, and, at times, with medicine 
and medical attendance. If a man have nothing to eat 
to-day, he cannot labor to-morrow. If, for a few days, 
he be deprived of food, he will inevitably die. If his 
food be insufficient in quantity, or of improper quality, 
his strength will diminish, and, of course, the muscular 
effort, of which he would be otherwise capable, will be 
decreased. If this be continued but for a very short 
time, he will become sick, and thus lose the power of 
laboring altogether. If he be not relieved, he Avill die. 
Hence we see, that there is a natural minimum of the 
cost of labor. The least cost, is that which is sufficient 
to give the laborer all the necessaries of life. If we give 
less, we not only diminish the power of labor, but, in a 
short time, take it away altogether. Hence, the minimum 
price of wages, does not depend upon the will of employ- 
ers, but upon those physiological laws which regulate the 
existence of man. 

2. But, this is not all. Man is short-lived. The spe- 
cies is kept in existence by succession. Unless children 
be reared, the race would soon become extinct. And 
children are, for several years, not only unable to earn any 
thing towards their own support, but they also require a 



GENERAL PRINCIPLE OF WAGES. 327 

large portion of the time and labor of the parent. A 
mother, who has the care of several children, and who 
also provides for the domestic wants of her husband, is 
rarely capable of much additional labor. Hence, in order 
to keep the number of laborers the same^ in any particular 
country, it is necessary that the parent or parents receive 
sufficient wages, not only to provide food, clothing, and 
shelter for themselves, but, also, for at least two children, 
until the children be able to support themselves. 

But, this is not all. Th' life of man is often prolonged 
beyond the period of active labor. In old age, a man is 
either utterly disqualified for labor, or else his labor is 
insufficient to support him. Hence, he must either be 
supported by his children, or else he must, when in his 
full strength, have accumulated sufficient property to 
support him in his decrepitude. Hence, the wages of 
labor must be sufficient, not only to support the laborer, 
and at least two children, but also to provide for, or to 
sustain him, in old age, when the power of labor is ex- 
hausted. 

If so much as this be earned by the laborer, the popu- 
lation of a country may remain stationary. If two chil- 
dren be reared by every human pair, these will supply, 
but will no more than supply, the ravages of death. 
This, therefore, is manifestly the lowest price of labor. 
If wages do not equal the amount necessary for this 
result, men will become sick, and will die ; a less propor- 
tion of children than this will be reared ; and population 
will diminish. The lowest price at which the labor of 
any animal can be procured, is the cost of rearing him, 
and of maintaining him in health and vigor. 

But, it is the fact, that the natural rate of the produc- 
tiveness of the human species is more rapid than that of 



328 GENERAL PRINCIPLE OF WAGES. 

two children to two parents. In favorable circumstances, 
two parents frequently rear six, eight, or ten children. 
The number of children who are born, does not depend 
upon the circumstances of the parents. More children 
are commonly born to the poor, than to the rich. The 
rich are often childless ; the poor, very rarely. But, sup- 
pose that the laborer receive only sufficient wages to en- 
able him to support himself and wife, and two children ; 
and that his family amount to six or eight human beings, 
it is manifest that some of them must perish. The food 
of two, will not sustain six or eight. The others must 
starve, or, in some way or other, die of want. The man- 
ner in which this occurs, it is painful to contemplate ; 
though, in most of the older countries, it is frequently 
seen. The pressure, in such a case, must fall upon either 
the parent or the child, and parental affection generally 
decides upon which it shall fall first. When parental affec- 
tion is strong, the parent denies himself of the necessaries 
of life, in order to support his children, until his constitu- 
tion, worn down by improper and insufficient food, sinks 
beneath the burden, and he dies in middle age, leaving 
his children helpless, unless they be relieved by public 
charity. When the parental feeling is less acute, the suf- 
fering falls directly upon the children. Their food being 
scanty and unhealthy, but few survive early infancy ; and 
those who do survive it, grow up feeble and unhealthy. 
A human infant is a tender plant, easily cut down, and 
liable to frequent diseases. Measles, whooping-cough, 
croup, teething, chronic complaints of the lungs, head, 
and abdominal viscera, require assiduous attention, warm 
clothing, and suitable food for the patient, or else its 
chance of living is very small. When children, ill-fed, 
ill-clothed, and without medicine and medical attendance, 
are attacked by these diseases, they die by thousands. 
When a portion of a family is thus removed by death, a 
larger portion of the necessaries of life remains for those 



NATURAL COST OF LABOR. 329 

who survive ; and, thus, their chance of hfe is increased. 
Thus, out of a very great number of births, frequently, 
but two or three children are reared. And this view of 
the subject is abundantly supported by facts. Adam 
Smith informs us, that it is no uncommon thing to see a 
woman, in the Highlands of Scotland, who has borne 
twenty children, of whom not more than two have arrived 
at adult years. The same author adds, that, although 
the children born in military barracks are numerous and 
apparently healthy, yet, officers have informed him, that 
rarely enough of them are reared, to supply the regiments 
with drummers and fifers. 

Now, we can scarcely suppose that to be the condition 
of man which his Creator intended, when so large a num- 
ber perish in infancy, from suffering, from hardship, and 
from want. Hence, I suppose the natural cost of labor, 
or, that cost which corresponds with the proper condition 
of man, would be that which allows of the rearing of such 
a number of children as naturally falls to the lot of the 
human race. This, however, presupposes the laborers to 
be industrious, virtuous, and frugal. If they be improvi- 
dent, indolent, intemperate and profligate, and thus either 
do not earn a competency, or else, having earned it, squan- 
der it in vice, the fault lies, not in their wages, but in 
themselves. Of course, the correction must come, not 
from a change in wages, but from a change in habits. 

It is, however, here to be remarked, that what is neces- 
sary to the sustentation and comfort of a human being, 
differs greatly in different climates. In northern latitudes, 
human beings seem to need a larger portion of animal food, 
in order to endure labor. The Esquimaux live upon ani- 
mal food entirely, and Sir E. Parry informs us, that, 
while wintering at the North Pole, he observed that the 
appetite of both his officers and men was much stronger 

42 



330 NATURAL COST OF LABOR. 

than usual, not only for animal food, but for animal food 
of the richest and most nutritious description. And as 
animal, is more expensive than vegetable food, the north- 
ern laborer, on this account, is more expensive than the 
southern. Again : In cold climates, clothing is much more 
expensive. A laborer must use both winter and summer 
clothing ; it must protect him from the cold and wet, or 
he will become sick and die. In cold climates, much 
more expense is incurred, in the erection of houses. A 
comfortable house, in a northern country, costs the labor 
of several men for several weeks, and of some men of con- 
siderable skill. In India, a day or two are sufficient to 
erect a bamboo-house, which, in that climate, answers 
tolerably well for the purposes of a habitation. And, 
besides this, in a cold climate, fuel, which must be used 
from three to six months in the year, is a very great item 
in the bill of annual expense. In warm countries, fuel is 
used for no other purpose than that of cooking ; and, for 
this purpose, there, a very small quantity suffices. 

These circumstances are sufficient to account, in part, 
for the different prices of labor, in southern India, and in 
the northern parts of Europe, and of the United States. 
Laborers in Batavia are hired for four cents a day ; and, in 
India, I believe, they are hired for the same sum. This 
would scarcely pay for the fuel, with which the meals of 
a northern laborer are cooked. 

It would seem, at first view, from these facts, that the 
laborers in southern latitudes would have a great advan- 
tage over the laborers at the north, and must, of necessity, 
undersell them in every thing. But such seems not to be 
the case. The enervating nature of the climate, unfits 
them for labor ; and indisposes them to the putting forth 
of intellectual skill. Hence it is, that this labor is mere 
muscular force, accompanied by scarcely any of the advan- 



NATURAL COST OF LABOR. 33! 

tages derived from natural agents. The rigors of a northern 
latitude compel men to invention, and invigorate them for 
continued effort. Hence, although a northern laborer re- 
ceives one dollar, or one dollar and fifty cents per day, and 
the Hindoo receives only four cents, yet the former is, in 
fact, the cheaper laborer : that is, it is the most economi- 
cal to employ him. And the evidence of this is seen in 
the fact, that raw cotton is, at present, carried from India, 
manufactured in Great Britain, and then, carried back to 
India, and sold cheaper than it can be made in India by 
the native workmen. 

Secondly. I have, thus far, treated only of simple 
labor ; that is, labor with which no such skill is united, 
as requires a previous education. 

But, this is only a part of the labor which is employed 
by man. A large portion of it, requires special and pecu- 
liar training. This, of course, adds to its cost. Suppose, 
as I have already stated, that the natural price of simple 
labor were merely sufficient to sustain a family, consisting 
of the ordinary number of persons. A man would, there- 
fore, by labor, without any education, under such circum- 
stances, earn this amount. But, if another labored for the 
same number of hours, but labored at an operation which 
he could not learn to perform, without spending six or 
seven years in acquiring an education, it is manifest that 
the second would be entitled to additional wages. Thus, 
suppose the_ laborer must spend seven years in acquiring a 
knowledge of his trade. During this time he is earning 
nothing. Now his wages, at compound interest, if he had 
been at profitable labor, would amount to a considerable 
sum, specially if they had been invested in capital, which 
might have been united with his own labor. He is enti- 
tled, therefore, to such an addition to his wages, as would 
pay the interest upon this amount. Besides, in many 



332 NATURAL COST OF LABOR. 

cases, the learner not only earns nothing, but is obliged 
to board and clothe himself. This amount is to be added 
to the capital which he has expended, and for which his 
wages should pay the interest. Nor is this all. The 
learner is frequently obliged to pay a large sum for in- 
struction. This, also, is to be added to his investment, 
for which he is to be paid when we employ him. Thus, 
in the learned professions, a student is obliged, commonly, 
to spend two or three years in preparing for college, to 
spend four years in college, and three years in professional 
studies, before he is permitted to practise. During the 
whole of these nine or ten years, in which he earns 
nothing, he must be fed, clothed, and furnished with 
books, and must pay a very considerable sum to his in- 
structors for tuition. He must, in most cases, also pos- 
sess the means to meet all these expenses, before he com- 
mences. Now, had he used such a sum skilfully, from 
the time at which he commenced, to that at which he 
concluded his studies, it would have amounted to a small 
competency. He is, therefore, fairly entitled, in addition 
to the price of simple labor, to such wages as would pay 
the interest of whatever such a sum would have amount- 
ed to, had it been used with ordinary skill. 

Wages, which, in addition to the price of simple labor, 
would pay the interest of whatever is expended in pro- 
curing the necessary education, would hence be the lowest 
cost of such labor. And, it is manifest, also, that these 
should vary with the cost of the investment necessary 
for acquiring the skill. Thus, the wages of him who 
was obliged to sustain himself Avhile a learner, should 
be higher than those of him, who, though he earned 
nothing, was boarded and clothed by his teacher. The 
wages of him who was obliged to pay for his tuition, 
should be higher than those of him, who, though he 
boarded and lodged himself, received his tuition for his 



SUPPLY AND DEMAND FOR LABOR. 333 

services. And, if such wages be not generally paid, such 
labor will not ordinarily be produced. Parents who have 
capital to bestow upon their children, are generally de- 
sirous of investing it to the best advantage. If the capi- 
tal necessary to furnish a professional education, will not 
improve the condition of a child, the parent will not in- 
vest the money in a professional education, but will em- 
ploy it, for the advantage of his child, in some other way. 
In this manner, the supply of such labor will be diminished, 
until necessity obliges men to offer greater inducements to 
produce it. 

II. Of the supply and deinand for Labor. 

First. Of the supply of Simple Labor. I have before 
stated that the number of children born, does not depend 
either upon the riches or the poverty of the parents ; but 
that the number born, is generally greater among the 
poor, than among the rich. I have also stated, how- 
ever, that the number rearec? does depend, very greatly, 
upon the circumstances of the parents. When the wages 
of parents are barely sufficient to rear two children, but 
two will be reared ; the rest will die in infancy. When 
wages will allow of rearing four, four will, on an average, 
be reared ] and so on, until we arrive at the natural limit 
of fecundity of the human race, supposing the habits of 
the parents to be virtuous, industrious, and frugal. Now, 
as simple labor requires nothing but healthy human beings, 
it is manifest that the supply of this labor will be in pro- 
portion to the demand ; that is, if wages be such as to 
indicate an actual demand for a large increase of labor, a 
large increase of labor will be the result. If wages be 
such as to demand only a diminished amount of labor, a 
diminished number of laborers will be reared. And this 
result will take place, until, on the one hand, it reaches 
the limit of the natural increase of the human race ; or 



334 SUPPLY AND DEMAND FOR LABOR. 

until, on the other hand, the number of human beings be 
so reduced by death or by emigration, that it can be sus- 
tained by the wages which industry can command. 

If this first hmit be reached ; that is, if wages be so 
high as to support all the children that are born, and yet 
there be a want of laborers, wages will rise very high ; 
aiid the deficiency will generally be supplied by imigra- 
tion. Laborers from less favored countries will then flow 
in, to supply the demand. The overburdened population 
of an older country will be drained off', and the surplus 
capital of a new country will be profitably employed. 

2. Such is the case with simple labor, or that which 
is produced by the mere multiplication of human beings. 
The same principles apply, in substance, to that sort of 
labor which consists of industry, directed by previously 
acquired skill, but Avhicli requires no special natural en- 
dowrnent. In this case, as has been remarked, if the 
investment made in education will afi'ord sufficient emolu- 
ment, in addition to that obtained by simple labor, it will 
be produced. If this additional emolument be insufficient, 
it will not be produced ; that is, men will not be educated 
for this particular occupation ; or, if they have been edu- 
cated for it, they will leave it, and devote themselves to 
some other pursuit. 

3. But, it frequently happens, that not only an educa- 
tion, but also peculiar native talent is necessary, in order 
to arrive at eminence, in a particular pursuit. When this 
is the case, the supply is limited by the gift of the Creator, 
and cannot be increased by the agency of man. No pecu- 
niary emolument could create the talent of a Milton or a 
Shakspeare, a Cicero or a Demosthenes, a Watt or a Ful- 
ton. Hence, the demand for such talent being great, and 
the supply limited, and by human effort incapable of in- 



SUPPLY AND DEMAND FOR LABOR. 335 

crease, the exchangeable vahie of its productions is fre- 
quently great. The emoluments of Sir Walter Scott 
were princely. It not unfrequently happens, however^ 
that this sort of talent is in advance of its age, and its 
value is not appreciated until after the death of its pos- 
sessor. Although, Jiowever, demand cannot create un- 
usual genius, yet it is the fact, that, whenever the demand 
is greatest for any particular talent, then, that talent is 
most likely to arise. The reason I suppose to be, that, 
in proportion to the encouragement which it receives, the 
less is the liability that any portion of that which the 
Creator has bestowed will be lost. Military talent, which 
is commonly held in high estimation, seems to be of very 
frequent occurrence. A nation has rarely any real need 
for it, without producing, in a short time, as great an 
amount of it as can be desired. The same remarks apply, 
in a considerable degree, to the talent for invention ; for 
scientific investigation ; for eloquence ; and many others. 

Secondly. Of demand for Labor. We have already 
divided labor into two kinds, viz : First, Simple labor,- 
comprehending, under this term, that which requires only 
that skill which every person may easily acquire ; and, 
secondly, that which requires some peculiar talent, and 
is perfected only by long and expensive training. We 
shall here, as above, consider these separately. 

I. Of Simple Labor, and that which requires only such 
skill as may be easily acquired by alL 

This is the sort of labor required to produce the neces-, 
sities of life ; that is, labor in the several departments of 
operative industry. For this labor, the desire is incessant 
and universal. Every one in the community needs, at 
every hour of his life, the results of that labor which pro- 
duces food, clothing, fuel and shelter. Unless these can 



336 SUPFLY AND DEMAND FOR LABOR. 

be procured, the human being will die ; and, as these arti- 
cles perish with the using, the demand is not only impera- 
tive, but unremitting. 

Now, such being the fact, he who possesses capital, 
knows that, if he can transform it into such products, he 
can always reasonably anticipate a profit. But he cannot 
transform it into such products, without labor. Hence, 
as incessant and imperative as is the demand for the 
necessities of life, so incessant and imperative must be 
the demand of the capitalist for that labor, by means of 
which alone they are produced. If a community need 
clothing, and a capitalist have all the means for making 
clothing ; and want nothing but workmen to create the 
product ; just in proportion to the demand for clothing, 
will be his demand for the workmen, by whose agency 
alone this demand can be supplied, and his capital ren- 
dered profitable. 

Such being the fact, there must always be a demand 
for such labor; hence, when there is any capital, such 
labor will always bring something. The rate at which 
it will be paid at different times, and in different countries, 
is next to be considered. 

We have already stated, that wages are the result of a 
partnership, formed between the laborer and the capitalist, 
in which the one receives a portion of the value created, 
in return for his labor; and the other, the remainder, in 
return for the use of his capital. Both of these parties 
are equally necessary to each other. If the laborer could 
not procure work, or could not exchange his labor for some 
value which he created, he must starve. If the capitalist 
could not create value from the employment of his capital^ 
he must starve also. He could neither eat, nor drink, nor 
wear his looiris, spinning-jennies, ships, iron, or cottonv 



POPULATION AND WAGES. 33t' 

Both, therefore, come into the market on equal terms • 
each needs the product of the other ; and, under these ch'- 
cumstances, they will each receive either less or more, in 
consequence of the conditions under which the exchange 
is made. 

Every capitalist wishes to have all his capital united 
with labor; for, that which is not thus united, will be 
useless to him ; nay, it will generally diminish in actual 
value. On the other hand, in a given state of the arts, 
the labor of a single man can be applied to but a given 
amount of capital. Hence, the number of laborers whom 
any single capitalist will require, wilt be in proportion to 
the amount of his capital. If a. capitalist of ten thousand 
dollars require ten laborers, one of one hundred thousand 
dollars Will require one hundred laborers. And so, in 
general, the greater the amount of capital employed in a 
country, the greater, of course, will be the number of 
laborers required. 

As now, every capitalist will wish to employ all his 
capital, if the number of laborers be insufficient to supply 
the demand, there will be a competition among capitalists 
for laborers, and they will offer higher wages ; that isy 
rather than have any portion of their capital useless, they 
will offer a larger share of the profits to the laborer. The 
first class of workmen will be all employed at a high price, 
and a portion of the second class will be raised one grade, 
iti order to supply the demand. The second class will, 
therefore, be still more insufficient to supply the demand 
for their description of labor, and their wages will rise^ 
and the increased deficiency be supplied from the third 
class. And, at last, those who were before employed only 
at simple labor, will be taken up and taught ; and thus, the 
whole class of workmen will be raised one grade in labor 
and in wages. 

43 



338 POPULATION AND WAGES. 

And the reverse will take place in the opposite case. 
Suppose the number of laborers be too great to be em- 
ployed by the existing amount of capital. A capitalist 
whose capital will occupy but one hundred, cannot employ 
one hundred and fifty laborers. Hence, there will be a 
competition among laborers for work. After as many of 
the first class have been employed as are needed, there 
will remain a portion of them out of work. These must 
fall into the second class, and receive the second rate of 
wages. This will cause an excess still greater in the 
second class ; their wages will fall, and a still greater num- 
ber will fall into the third class. The lowest class will 
thus be supplied from the classes above it, and it must 
betake itself to simple labor, or labor of the cheapest kind, 
while many of those whose only support is derived from 
simple labor, must be out of employment, either wholly 
or in part; that is, the whole class of laborers will fall 
one grade, and their wages will depreciate in proportion. 
Hence we see, that, at any given time and place, the de- 
mand for labor, and the wages of labor will be in the 
proportion to the ratio that the active capital of a country 
bears, to the number of laborers in that country. 

But provision has been made, in our physical constitu- 
tion, for the rapid increase of the human race. It is capa- 
ble of doubling, once in twenty-five years, as is seen to be 
the case in the United States. And, provision is also made, 
for the rapid accumulation of capital. The earth, every 
year, if it be properly tilled, and if capital be properly 
employed, produces more than its inhabitants consume. 
This surplus may be turned into fixed capital, and may 
thus give employment to a larger number of laborers. 
Hence we see, that the average rate of wages, in any 
country, for a number of years taken together, must de- 
pend upon the ratio which the annual accumulation of 
capital in any country, bears to the annual increase of 



POPULATION AND WAGES. 339 

human beings. If wages be high, and capital increase 
as fast as the human species increases, wages will, for any 
period that may be contemplated, continue as they are at 
present. If wages be low, and capital does not increase 
faster than the human race, they will continue low. If 
the increase of capital be more rapid than the natural in- 
crease of the human race, wages, however high, will rise, 
until they be so high that production can yield no profit. 
The deficiency would then be supplied by foreigners, who 
would emigrate to the more favored country. If the in- 
crease of capital be less rapid than that of the human race, 
the price of wages will fall, distress in the working classes 
will ensue, and they must either emigrate or starve. 

JBence we see, that the prosperity of a nation does not 
depend simply upon the absolute amount of its capital, 
but upon the ratio which its capital bears to its population, 
and the ratio which is maintained between the increase 
of both. If the increase of capital be so rapid as to allow 
the simple laborer sufficient wages to support and rear as 
many children as, under ordinary circumstances, form a 
human family, there will be no distress in any class ; all 
will be well supported; there will be no beggars from 
necessity ; and every one will have the additional advan- 
tage arising from his skill and his education. If the 
increase of capital be more rapid than this, every one will 
have, besides support and maintenance, many of the con- 
veniences of life; and a large proportion will be continually 
rising from a lower, to a higher grade of employment. 
When the increase of capital is less rapid than the ordi- 
nary increase of the human race, there will be, in the 
lowest class, continual distress ; children will die in great 
numbers ; the average duration of human life will be 
shortened ; and many persons will be sinking from the 
higher, into the lower grades of employment and comfort. 



340 POPULATION AND WAGES. 

The former seems to be the condition of this comitry. 
Hence, distressing poverty, or poverty which shortens 
hfe, except it arise from intemperance, or from some form 
of vice or indolence, is very rare. The common laborer, 
if industrious, virtuous and frugal, may not only support 
himself, but, in a few years, accumulate a valuable little 
capital. And, notwithstanding the great immigration of 
foreigners, the wages of labor are annually rising. Hence, 
it is evident, that the increase of capital more than keeps 
pace with the natural and imported increase of the human 
race. 

In Ireland; the case is reversed. There, the lowest 
classes are, and have been for a long period, in the most . 
abject poverty. Multitudes of them are said to die, annu- 
ally, of famine. He is considered in tolerable circum- 
stances, who is able to furnish his family with a hovel, 
with one full meal of potatoes a day, and with a sufficient 
supply of straw to be spread upon the earthy floor for 
bedding. The reason I suppose to be, that, in addition 
to the deplorable ignorance of the people, the land is 
owned in England ; and the rents, collected by rapacious 
underlings, is annually carried away and spent in Eng- 
land, instead of being turned into fixed capital in Ireland. 
Hence, the annual increase adds but little to the capital 
of the country ; and the people must starve or emigrate. 

This subject illustrates the connexion between capital 
and population. Population always follows capital. It 
increases, as capital increases ; is stationary, when capital 
is stationary ; and decreases, when capital decreases. And 
hence, there seems no need of any other means to prevent 
the too rapid increase of population, than to secure a cor- 
respondent increase of capital, by which that population 
^ay be supported. 



POPULATION AND WAGES. 341 

Several conclusions naturally belong to this part of this 
subject, to which it may be proper in this place to allude. 

1. If the above reasonings be correct, we see the great 
importance, both of individual and national frugality. It 
is by many persons supposed, that luxury and expensive- 
ness in individuals are specially useful to the poor ; and 
that economy and frugality are injurious to them. We 
see, however, that nothing could be more evidently 
erroneous. He who consumes upon horses, and dogs, 
and equipage, ten thousand dollars' worth of value, is 
annually putting out of existence a value, which, if united 
with industry, might support several families in comfort ; 
and he is thus rendering it impossible, that so many can 
be supported. He who saves this sum by frugality, and 
invests it in some profitable enterprise, employs the per- 
sons whom it will support the first year ; and, by so doing, 
is enabled to support a larger number the next year, and 
thus on, indefinitely. The one is destroying, for ever, a 
fund for the support of industry ; the other is annually 
rendering that fund larger and more productive. 

2. The same is true of nations. The annual revenue 
of a nation, must, of course be derived from the annual 
revenues of the people. If a man, this year, pay one 
hundred dollars in taxes, he has precisely ninety dollars 
less to unite with the industry of the next year, than he 
would have, if he paid only ten dollars. And thus, if the 
annual expenditures of a nation be fifty millions, these 
fifty millions are just so much abstracted from the fund 
which has been collected during that year, for the purr 
pose of supporting the addition which this year has made 
to the number of the human race. If the whole revenue 
of the nation were barely sufficient to employ and support 
the annual increase of its inhabitants, those who would 
*iave been supported by these additional fifty millions. 



342 POPULATION AND WAGES. 

must perish. Such is the natural and necessary result of 
national prodigality. 

I do not, however, by any means, intend to assert, that 
taxes are not always necessary. A government necessarily 
involves expense. And, if the government be well admin- 
istered, no mode of expenditure yields a richer or more valu- 
able product than taxes. What I have to say, is merely 
this : that while all the expense necessary to good govern- 
ment should be met, and met cheerfully and liberally, yet 
expense, heyond this, is a benefit to no one ; it diminishes 
the comforts of all, and destroys the lives of multitudes. 
Hence, we see the evil of any form of government, which, 
by necessity, involves great expenditure. Hence we see, 
also, the evil of laws of entail, and of all other arrange- 
ments, by which immense amounts of capital are accumu- 
lated in the hands of single individuals, or of families, in 
perpetuity. In this manner, the annual productiveness 
of a country is greatly decreased, and, in consequence, the 
annual revenue of the whole, is by the difference lessened. 

3. Of all the modes of national expenditure, the most 
enormous is that of war. In the first place, the expense 
of the munitions of war is overwhelming. In the next 
place, the most athletic and vigorous laborers must be 
selected for slaughter. Of these, the time and labor are 
wholly unproductive. The operations of industry, in 
both belligerent nations, are thus greatly paralyzed. The 
destruction of property, in the district through which an 
army passes, is generally very great. All this must be 
taken from the earnings of a people; and, is so much 
capital absolutely destroyed, from which multitudes might 
have been reared, and have lived in prosperity.* 



^ To illustrate the vast expenditure of war, I here insert an estimate 
of the expenses of some of tlie latest wars. I do not vouch for its entire 



POPULATION AND WAGES. 343 

If the considerations which have been adduced above 
be correct, there is no need of seeking any further for the 
cause of that distress among the lower classes, of which we 
hear so frequently in Europe. If the capital which a 
bountiful Creator has provided for the sustenance of man, 
be dissipated in wars, his creatures must perish for the 
want of it. Nor do we need any abstruse theories of 
population, to enable us to ascertain in what manner this 
excess of population may be prevented. Let nations cul- 



accuracy, but, I presume it will be found, in general, correct. It is from 
one of the publications of the Peace Society, and seems to be made up 
from authentic documents : 

GREAT BRITAIN. 

War expenses, for the year 1815, - - £54,317,767 

Interest on debt, for that year, 6,200,000 

£60,517,767 
Military and naval expense, for 1818, ------ 15,155,000' 

Difference of the two years, 45,362,767 

Equal to $201,362,898 

FRANCE. 

Military expenses for 1809, francs. 656,500,000 

Contributions on foreign nations, - - - - 330,000,000 

Total, 986,500,000 

In 1817, the military expense was, - - - - - - 228,000,000 

Expense of one year's war, ' - 758,500,000 

Equal to ■ $142,218,750 

The estimated cost to Great Britain, of 22 years' war, £720,000,000 

Equal to $3,200,000,000 

War expense of France, for same period, - - - 3,130,000,000 

Austria, about 2,000,000,000 

Three years' war of the United States, - -, - 120,000,000' 

8,450,000,000 
Expense of other European Powers, - - - - - 4,550,000,000 

13,000,000,000 
This is nothing but the national expense, without estimating the pro- 
digious and incalculable losses to individuals. 



344 POPULATION AND WAGES. 

tivate the arts of peace. Let them reduce the unneces- 
sary expenses of governments. Let them abohsh those 
restrictions which fetter and dispirit industry, by diminish- 
ing the inducements to labor. Let them foster the means 
by which the productiveness of labor may be increased, 
and the annual gifts of the Creator will so accumulate, 
that the means will be provided for the support of all the 
human beings which are annually brought into the world. 
As soon as this accumulation bears a suitable ratio to the 
number of inhabitants, we shall hear no more of the evils 
of excess of population. It is vain to throw away the 
food of a million of people in a single day, and then be 
astonished that a million of people are starving for the 
want of it. 

Hence, we see the economical evils of every form of 
vice, as, for instance, of intemperance. The money spent 
in intemperance, is so much absolute waste of capital. 
This is, of itself, in most civilized countries, enormous. 
But besides this, it unfits the individual for labor; it is 
the author of numerous diseases, both in parents and in 
children. It is the cause of almost all the crime and 
pauperism in the community. All these together, if they 
could be correctly estimated, would form a total amount, 
which would seem almost incredible ; and they are alto- 
gether exclusive of that loss of social, intellectual, and 
moral happiness, which results from this vice. 

To sum up what has been said. We see that the de- 
mand for the labor employed in the production of the 
neccessaries of life ; and, of course, the wages of labor, 
must be in proportion to the ratio which the amount of 
capital in any given community, holds to the number of 
laborers ; and to the ratio which the accumulation of capi- 
tal bears to the increase of the human race. And these 
being at any time fixed, wages will rise or fall, as this ratiO'' 



LABOR IN THE FliNE ARTS. 345 

varies. If capital be increasing more rapidly than human 
beings, wages will rise. If it be not increasing so fast, 
wages will fall. And if, from any sudden change in the 
affairs of a country, this ratio be suddenly affected, wages 
will be affected accordingly. 

II. I come now to consider that sort of labor, which 
requires special and expensive education, and some pecu- 
liar natural endowment ; such, for instance, is the labor 
which is bestowed upon the fine arts, and which is em^ 
ployed in some of the professions. 

1. The desire for this labor, varies with the state of 
society. In the beginnings of a nation, when every one 
is interested in providing the means of subsistence, there 
is little time or capital to spare for the cultivation of a 
taste for the fine arts. And, at a yet more advanced 
period, when the wages of labor are universally high, and 
every one may reasonably cherish the hope of attaining to 
independence, the love of gain is too absorbing a, passion 
to allow of the development of any habit that does not 
conduce to pecuniary acquisition. It is only in the later 
and more advanced stages of society, where hereditary 
fortunes have been built up, and where accumulated 
property gives opportunity for leisure and refinement, 
that much desire is manifested for those productions of 
the fine arts, which are considered the offspring of the 
rarest and most highly gifted talent. 

. 2. The ability to gratify this desire, depends also upon 
the social condition of a people. The productions of the 
fine arts are generally very costly. Hence, where property 
is nearly equally divided, where no one is poor, though no 
one may be exorbitantly rich, such productions could have 
but few purchasers. Whether wages were high or low, 
whether there were no beggars, or whether there were ten 

44 



34G CAUSES OF DIFFERENCE OF WAGES. 

thousand beggars, would have no effect upon the proba- 
bility of the sale of a statue which cost one hundred 
thousand dollars. The demand, of necessity, is limited 
to the wealthy ; and that form of social organization which 
is most favorable to the accumulation of large estates, and 
to the retaining of them in the hands of single individuals, 
will always be most favorable to the cultivation of the fine 
arts. In this country, where we have few beggars, and 
where, but for intemperance and vice, we should have 
none, a first-rate sculptor or painter would starve. In 
many of the countries of Europe, where the poor are fre- 
quently famishing, and where a large proportion of the 
population are beggars, you may frequently find, in the 
gallery of a single gentleman, a finer collection of paint- 
ings, than could be made from all the pictures in the whole 
United States. Hence, I think that the prospect for the 
arts, in this country, is by no means encouraging. 



SECTION II. 

OF THE SPECIAL CIRCUMSTANCES BY WHICH, IRRESPECTIVELY 

OF THE INFLUENCE OF CAPITAL, THE WAGES OF 

LABOR ARE AFFECTED. 

In the preceding section, I have endeavored to show in 
what manner wages, or the price of labor, are affected by 
capital. The general principle there illustrated, is, that 
wages will be high, when the proportion of capital to 
labor is great ; and low, when the proportion of capital to 
labor is small. And that wages will be rising or falling, 
as this proportion of capital to labor is increasing or 



CAUSES OF DIFFERENCE OF WAGES. 347 

diminishing. On this principle, I suppose that the differ- 
ence of wages, in different countries, under the same 
physical conditions, may be explained. 

And the same principle may be carried a step farther. 
Whenever, in any country, capital is removed from one 
kind of employment to another, the wages, in that form 
of labor to which capital is transferred, will be raised. 
Thus, if a people find it for their interest to employ their 
capital in manufactures, instead of navigation ; the wages 
of manufacturers will rise, and those of sailors will fall. 
This will continue, until the demand for manufacturing 
labor is supplied. But, when once the current is set in 
any direction, it frequently continues to move, after the 
force which was originally applied has ceased. Hence, 
it will frequently happen, that a change of this sort will 
abstract from navigation too large a number of laborers, 
so that there will not be a sufficient supply to meet even 
the diminished demand. In this case, the wages of sea- 
men will rise again, somewhat above the proper average. 

But, supposing all these circumstances to be adjusted ; 
there will yet remain others of a different kind, to affect 
the wages of labor. We do not find that the wages of all 
laborers -are the same, whether labor be high or low, and 
whether the productiveness of labor be great or small. A 
captain receives higher wages than a sailor ; a master 
manufacturer, higher wages than his journeyman ; and a 
merchant, higher wages than his clerk. The circum- 
stances which cause these differences, remain now briefly 
to be noticed. 

1. The price of labor is affected by the ease or diffi- 
culty, the pleasure or pain, of the employment. 

When the employment requires great muscular effort, 
the number of persons who can accomplish it, is compara- 



34S CAUSES OF DIFFERENCE OF WAGES. 

lively small. This diminishes the supply, and, of course, 
increases the price. When this is the case, as men are 
not usually attracted by the prospect of hard labor, a 
smaller number apply for this kind of employment. This 
still further diminishes the supply. Hence, the price will 
rise, as the wages must be increased sufficiently to over- 
come this repugnance. On the contrary, when the labor 
is easy, the number of persons, both able and willing to 
perform it, is increased ; thus, the supply is large, and 
wages fall in proportion. 

The same effect is produced by the general estimation 
of the pleasantness or unpleasantness of the employment. 
Any kind of industry, which, from necessity,. is uncleanly, 
commands higher wages than one which can be performed 
without interfering with personal neatness. One which is 
considered disgraceful, can be supplied with laborers, only 
by paying an unusual price. The business of a public 
executioner, though not difficult, is disagreeable, and 
generally considered disgraceful ; and hence, in countries 
where it is made a distinct profession, it commands high 
wages. The labor in the learned professions, is consid- 
ered honorable ; and, therefore, it is less highly recom- 
pensed than the same degree of labor and skill in other 
employments. 

2. Wages are affected by the skill required in perform- 
ing the operation. This arises from two circumstances : 
First, skill can be acquired only by practice and educa- 
tion. This, as has been explained, is in itself costly, 
and is an investment, for which the possessor of right 
receives an emolument. And, secondly, unusual skill 
generally supposes some unusual endowment. But, in 
proportion to the rarity of the endowment, must be the 
smallness of the supply, and, of course, the rise of price 
which must be paid for the product. 



CAUSES OF DIFFERENCE OF WAGES. 349 

3. The confidence reposed. Wherever a great amount 
of capital is employed, it must, to a very considerable 
degree, be placed in the power of some one or more agents. 
Hence, if this power be abused, or used unwise,ly, the 
whole is liable to be lost. If the manager be careless, he 
may destroy it by negligence ; and, if he be dishonest, he 
may convert it to his own emolument. Now, this union 
of judgment with incorruptible integrity, is absolutely 
necessary in many of the operations of production. But, 
such a union is rarely to be found. Hence, while the 
demand is imperative, the supply is small. On this 
account, the Avages of such persons are high ; and it is 
generally found more economical to secure such persons 
at any price, than to entrust important affairs to the in- 
competent and the vicious. This is one of the rewards, 
which, in the course of human events, God bestows upon 
wisdom and virtue. 

4. Certainty or 'uncertainty, constancy or inconstaficy, 
of employment. Division of labor requires that a man 
devote himself exclusively to a single employment, and, 
therefore, that his whole emolument be derived from that 
employment. Hence, when the opportunities of employ- 
ment are rare, the wages for each particular operation 
must be greater ; since we must pay, not only for the 
time actually employed, but also for that time which is 
lost to the laborer, while waiting for employment. We 
pay more for riding a mile in a hackney-coach, than for 
riding the same distance in a stage-coach ; because the 
hackney-coachman may stand half a day in waiting, 
before he finds another customer. For the same reason, 
although horse keeping is higher in the city than in a 
country town, you pay less for coach hire in the former 
case, than in the latter, because of the greater steadiness 
of the employment. Thus, also, when a trade can be 
exercised for only a part of the year, as in the case of a 



340 CAUSES OF DIFFERENCE OF WAGES. 

brick-layer, you pay to the laborer higher wages ; because 
he must receive enough to compensate for the time in 
which he is obliged to lie idle. 

5. Another circumstance which affects the price of 
wages, is the certainty or uncertainty of success. In 
most of the ordinary avocations of life, if a man acquire 
the requisite skill, he will invariably find employment. 
In the professions, it is not so. Those who have prepared 
themselves at great expense to exercise them, unable to 
find employment, sometimes relinquish them for other 
pursuits. When there is such a risk, the wages of labor 
should be greater ; for the laborer is entitled to a remu- 
neration for the risk of this loss of time and of capital. 

These, I believe, are the principal circumstances on 
which, irrespectively of the influence of capital, the price 
of labor depends. It will be at once seen, that they are 
;susceptible of very great variety of modification, and com- 
bination ; and that, frequently, several of them require to 
be taken into the account, in order to explain the reason 
of the high or low price of any particular form of labor. 
I think, however, that by such combination, the various 
phenomena of wages may be generally explained. 

The preceding remarks are intended to apply to those 
cases, in which the individual is supported wholly by his 
own labor. When an individual, or a class of individuals, 
have any other means of support, the price of labor, of 
course, falls, and can be subjected to no general rule. 
Thus, a large portion of the laboring class of females are 
supported, in part, by their relatives ; some of them re- 
ceiving house-rent, others, both house-rent and board, for 
nothing. Hence, they are enabled to labor for a price far 
less than the actual cost. This is one reason why the 
price of female labor, especially of that labor which re- 



CAUSES OF DIFFERENCE OF WAGES. :{41 

quires but little skill, and which can be done at home, is 
so low. Another reason is, that the customs of society 
restrict the modes of production in which female labor 
may be employed. Hence, in these modes of production, 
the supply of labor is greater than the demand. Hence, 
also, the establishment of a manufactory, or the introduc- 
tion of any kind of labor, which furnishes a new mode of 
female employment, advances the price of female labor. 
This, also, is the reason why the labor performed in nun- 
neries, monasteries, and state prisons, is sold below the 
market price. The fact is, that the laborers are supported, 
either in whole or in part, by a separate fund ; and hence ,^ 
there is no natural price for their products, since it is not 
regulated by the cost 



CHAPTER SECOND. 

THE PRICE OF MONEY, OR INTEREST. 



SECTION 1. 

OF THE BENEFIT OF CAPITAL TO THE LABORER. 

Having, in the preceding chapter, endeavored to iUus- 
trate the principles which regulate the rate of wages, we 
now proceed to illustrate those which regulate the rate of 
interest, or the price of capital. 

We have already stated, that when two persons were 
engaged in creating a product, a part of the profit belonged 
to the labor, and a part to the capital. Let us first con- 
sider the benefit of capital to the laborer. 

Suppose a laborer to be endowed with health, and also 
with skill sufficient to perform an operation in any mode 
of production. His power is made up of two things, 
first, mere muscular force ; and, secondly, skill. By the 
one, he is enabled to exert mere brute force, as in lifting, 
carrying, or drawing. By the second, he is enabled to 
avail himself of the use of natural agents ; for, skill in 
production, is little else than this ability. But it is evi- 
dent that his labor of the first kind, is vastly less pro- 
ductive than that of the second kind, as the simple labor 



BENEFIT OF CAPITAL TO THE LABOREll. im 

of a man's hands, is less productive than that labor -which 
is employed in directing the agents of nature. 

Suppose, now, a man entirely deprived of the use of 
capital ; his labor must be wholly of the first kind ; of 
course, it must be of the least productive quality, and it 
must earn the lowest rate of wages. Suppose a black- 
smith, of ever so great skill, destitute of forge, hammer, 
anvil, and of all his tools, and also of iron upon which to 
employ them ; he can, in no manner, avail himself of his 
skill, or of the use of the natural agents with which he is 
acquainted, and he must either perish, or else earn his 
livelihood by simple labor ; that is, by the putting forth of 
mere brute force, without any benefit from his skill, though 
it be ever so great. But, let some one loan him a shop 
and tools, with iron and coal sufficient to carry on his 
business, and he can, at once, avail himself of his skill ; 
that is, of the use of those natural agents, with which he 
is acquainted. His labor will now become vastly more 
productive ; that is, he can, in a given time, create a 
vastly greater amount of value than before, and will, of 
course, receive a much larger recompense. If his simple 
labor were worth one dollar per day, his labor and skill 
will now probably be worth at least two dollars ; that is, 
the capital which he uses, has at least doubled his wages. 
This, at the rate of three hundred working days in a year, 
would be equal to three hundred dollars, which he receives 
for the use of the capital which was loaned to him. Sup- 
pose that this capital were worth, originally, five hundred 
dollairs ; and that he paid for the use and wear and tear of 
it, ten per cent, per year, he might then pay fifty dollars 
for the use of it, and have two hundred and fifty dollars 
nett profit, over and above the wages which his simple 
labor could earn. In two years, he might, besides paying 
the interest, pay for the whole capital, and thus own it 
himself. He would then be entitled to all the profit 

45 



354 BENEFIT OF CAPITAL TO THE LABORER. 

derived from the three several sources : first, his labor ; 
secondly, his skill; and, thirdly, the use of the capital. 
upon which his labor was employed. 

I have, in the above case, supposed the laborer to horroto 
the shop, tools and materials. This is not the ordinary 
way in which capital is borrowed. It is much more 
common, and much more convenient for him, who wishes 
to borrow the capital with which to employ his skill, to 
borrow it in the form of money, which he immediately 
transforms into that kind of capital, which his occupation 
requires. Hence, contracts of this kind are always esti- 
mated in money. And hence, interest is commonly called 
the price of money. It is evident, however, that it is not 
the money, but the capital, which is wanted ; because, as 
soon as the man obtains the money, he at once exchanges 
it for capital. This, therefore, should always be borne in 
mind, that when we speak of the price of money, we 
always mean the price of capital, for which the money is 
always exchanged. 

Hence we see, that the laborer may derive very great 
benefit from the loan of money ; that is, of capital. He 
is thus enabled to employ, advantageously, all his skill : 
and thus, a loan for a few years is very frequently the 
commencement of a fortune. And hence we see, as we 
have said before, how very absurd is the prejudice so com- 
monly excited against money-lenders, and money-lending 
institutions. Were there no money-lenders, there could 
be no money-borrowers ; and were there no money-bor- 
rowers, the industrious artisan would surely be the great- 
est sufferer. It is not denied that the money-lender, loans 
for his own advantage. But, I do not see why it is any 
more odious for one man to lend for his own advantage, 
than for another man to borrow for his own advantage. 
It is not pleaded, that the one, any more than the other. 



I 



BENEFIT OF CAPITAL TO THE LABORER. 355 

is benevolent. This is another question. All that is 
pleaded is, that both, in so far as the things themselves 
are concerned, are equally honest and honorable. In both 
cases, the man benefits himself while he benefits others ; 
and this is all that can be said in favor of any other 
exchange. It is not, of course, denied, that the lender 
may be oppressive, tyrannical, and avaricious ; nor that 
the borrower may be fraudulent, indolent, and profligate. 
But this afl"ects not the nature of the transaction per se. We 
here speak of the thing itself, and not of the manner in 
which either party may act, in consequence of, or in con- 
nexion with, it. 

I have stated but one form in which the laborer is bene- 
fitted by the use of capital. Another form of equal advan- 
tage is equally common. 

Suppose that a village were destitute of capital, and 
that Its inhabitants were therefore obliged to be employed 
in simple labor, or in that which required the least skill, 
and, therefore, produced the lowest wages. They would, 
consequently, be poor, and would be able to accumulate 
very little ; since, their whole earnings would be scarcely 
more than sufficient to provide them with the necessaries 
of life. Let, now, an opulent man come among them, 
and establish a manufactory which should employ every 
inhabitant capable of labor. Every one knows, that, by 
this means, the wages of labor would be doubled, and all 
the comforts of living would be incomparably increased. 
The reason is the same, in principle, as in the other case. 
The capitalist furnishes the materials and the tools, by 
which the laborer is now enabled to use his skill, in 
addition to the simple labor, which he used formerly; 
that is, by which he is enabled to labor, not with his 
hands, but also with the agents of nature. The result is, 
a great increase of the productiveness of industry ; and, 



356 BENEFIT OF CAPITAL TO THE LABORER. 

of course, a much larger amount than before, becomes 
the portion of the laborer. In the division of the profits, 
the owner receives payment for the use, wear and tear, 
and risk of his instruments, for the use and risk of his 
material, and for his own labor and skill in supervision, if 
he superintend ; or for the labor and skill of another, if 
he does it by a deputy. The workman receives payment 
for his labor and for his skill, according to the principles 
illustrated in the preceding chapter. We see, that, in 
this case, the laborer is as truly benefitted by the use of 
capital, as in the preceding case. The only difference is, 
that here, he receives payment only for labor and skill ; 
and there he received payment for the use of capital, 
deducting the rate of interest and the risk of loss. It 
will be easy to apply the principle here illustrated to 
other cases. When a merchant borrows capital, he is 
thus enabled to use his skill in exchange. Hence, the 
use of capital, makes the difference between his wages as 
a merchant, and what his wages would be, were he a 
common laborer. And so of any other case. 

Hence, we see how incorrect is the notion frequently 
advanced, that when property is destroyed by fire or flood, 
or in any other manner, it is of no consequence to the 
community ; since it was nothing but the possessions of 
the rich. The rich may, or may not, suffer in their com- 
forts and conveniences, by such a loss ; but the poor always 
must suffer. The very means by which their wages are 
raised from those of simple to those of skilful labor, from 
the wages of labor with their hands alone, to the wages of 
labor with the agents of nature, is thus taken away. Re- 
move capital, and they have nothing to offer in exchange, 
but mere physical force. Hence, it is always to be remem- 
bered, that, in the destruction of property, the poor are 
always the greatest sufferers. 



OF RISK OF INVESTMENT. 357 

It is evident, then, that capital loaned, should be paid 
for. Interest is no extortion, and no unreasonable de- 
mand. It is for the advantage of the skilful laborer to 
borrow it, at a reasonable interest, as much as it is for the 
advantage of the capitalist to loan it ; and it is as much for 
the advantage of the laborer as of the capitalist, to enter 
into that partnership, by which they share the profits of 
the operation between them. It is by reason of this part- 
nership, as I have said, that the laborer receives the wages 
of skill, instead of the wages of mere physicial force ; and 
the capitalist is able to employ all his capital in produc- 
tion, instead of employing only that portioji of it, which 
he could employ with simply his own personal industry 
and skill. 

We next proceed to consider the circumstances which 
vary the rate of interest at which capital may be bor- 
rowed. These, I suppose to be three, viz : 1st. Risk ; 
2d. Convenience of Investment ; and, 3d. Productive- 
ness of Capital. 



SECTION II. 

OF RISK, AND CONVENIENCE OP INVESTMENT. 

I. Of Risk. When a man loans his property to another, 
there is always a risk of his never being repaid. Now, the 
greater this risk, the greater will be the interest which a 
capitalist may justly demand. He who would loan to one 
man, for six per cent., when he was sure of being repaid, 
would not, surely, loan to another man, for the same sum, 



358 OF RISK OF INVESTMENT. 

when there were fifty chances in one hundred, that he 
would lose both principal and interest. At any rate, he 
who did so, would very soon cease loaning altogether. 

This risk depends upon several circumstances. Of 
these, the principal are : the nature of the employment ; 
the character of the borrower ; and the character of the 
government. 

1. There is a difference in risk, arising from the differ- 
ent modes of employing capital. For instance, property 
at sea, is more liable to destruction than property on land. 
Hence, the ancient Athenians made a difference between 
land and marine interest. The former was at twelve, 
and the latter as high as sixty per cent, per annum. 
Property in merchandise is more liable to be destroyed, 
than property in houses ; property in houses, than property 
in farms. A house in the country, is safer than a house 
in town ; and a stone house is safer than a wooden house. 
Property employed in the manufacture of cotton, is less 
liable to be destroyed than property'" employed in the 
manufacture of gunpowder. Now, when a capitalist loans 
property to be invested in some one of the above forms of 
capital, and his only security for payment consists in his 
hold upon the property in which it is invested, it is evi- 
dent that his risk, other things being equal, will depend 
upon the safety of that property. Hence, it is reasonable 
that his remuneration for risk, should correspond with the 
greatness of that risk. 

It may also be remarked, that the principle is the 
same, whether capital be used by the owner, or by some 
other person. If a merchant borrow capital, under the 
circumstances above mentioned, he pays according to the 
nature of the risk. If he use his own property, he is enti- 
tled to remuneration for that risk. He may, if he please. 



OF RISK OF INVESTMENT. 359 

have it insured, and then he pays for the insurance, and 
charges this in the cost of the articles which he sells. 
Or he may leave it uninsured ; that is, insure it himself, 
and then he is entitled to an advance on his profit, equal 
to that which he would have paid to an insurance com- 
pany for insuring it. Thus, if a merchant import one 
hundred thousand dollars' worth of teas from Canton, he 
may have it insured ; and then he will charge this in- 
surance upon the cost of the tea, when he makes up his 
prices for sale. But, if he do not have it insured, he is 
entitled to the same amount himself; because he takes 
the risk himself, and is entitled to the premium. 

2. The second circumstance which enters into risk, is 
the personal character of the borrower. This is made up 
of industry, skill, knowledge of business, pecuniary ability, 
and moral character. When these have not been tested, 
or where, having been tested, they have been found in- 
sufficient to the safe conduct of business, there will be a 
correspondent indisposition in his neighbors to loan ; be- 
cause, every one feels that there is, in such a case, more 
than a usual risk. Hence, such an individual cannot 
borrow, unless at an advanced premium, or at a higher 
rate of interest. On the contrary, if a man have con- 
ducted an extensive business, for a long period, with un- 
deviating success, he attains to a high mercantile credit, 
and is enabled to borrow money at the lowest rates. But, 
if a merchant be known to be frequently embarrassed ; if 
he have ever, or specially have more than once, failed,' 
mercantile confidence in him is destroyed. No one will 
lend him, except on the most unfavorable terms ; hence, 
he can do business with nothing but his own capital, and, 
of this, he is generally destitute. Hence, a failure, and 
specially a second failure, is commonly fatal to mercan- 
tile success. Firm credit is rarely afterwards established. 



360 OF RISK OF INVESTMENT. 

I am aware that these two causes of variation of risk 
are apparently modified, by the practice of endorsing pri- 
vate notes. If I want money for the most hazardous 
investment, or am of the most doubtful credit, if I can 
offer my note, endorsed by persons of established mer- 
cantile character, it is raised, at once, to par ; that is, the 
extra risk is immediately removed. But this modification 
is only apparent. The endorser will rarely do this for 
nothing. He either himself receives a premium for it, 
directly ; that is, he is paid for taking the risk of default 
of payment ; or else, two persons mutually endorse for 
each other, and thus, the risk which A assumes for B, is 
paid for, by B's assuming a similar risk for A. It is 
singular that any one should ever ask another to en- 
dorse his note merely as a matter of comity. It should 
always be a matter of business, and liable to be paid for, 
hke any other business transaction. A merchant should 
no more ask another to endorse his note gratuitously, than 
he should ask him to insure his house gratuitously. The 
nature of the transaction is precisely the same. The risk 
in the one case, is frequently as great as in the other ; and 
it should always, as much in the one case as in the other, 
be a matter of compensation. Such, at least, seems to 
me the nature of the case. 

3. The risk incurred in lending capital, is affected by 
the character of the government. This affects both pri- 
vate and public contracts. 

If justice be well administered, and every man have all 
reasonable security that he will have the whole power of 
the society at his disposal, in order to enforce a just con- 
tract ; of course, the risk is less, and the rate of interest 
lower, than when experience has shown, that no such 
security exists. Hence, we see the economy of good 
legislation, and of a Avise, just, and incorruptible .Tudiciary- 



CONVENIENCE OF INVESTMENT. 3(51 

The additional interest on capital, incurred in consequence 
of the bad administration of justice in a country, would 
annually pay the expenses of all the courts of law, ten 
times over. 

The same results flow from confidence, or the want of 
confidence, in the stability of a government. A revolu- 
tion not unfrequently dissolves contracts, dissipates secu- 
rity, and renders obligations valueless, both by destroying 
the evidence of their existence, and annihilating the means 
of enforcing them. Hence, when such an event is feared, 
men will not loan, except at an exorbitant premium ; and 
they generally prefer removing their property to some other 
country, to subjecting it, for any premiam whatever, to the 
risks of a revolution. 

The same may be said of public contracts. Govern- 
ments, in whose stability undoubted confidence is reposed, 
borrow the most enormous sums, at the lowest rates of 
interest. Those, which are in daily danger of being over- 
thrown, can scarcely borrow at all, or, if they do borrow, 
it is at the most ruinous premium. The South American 
governments can scarcely borrow at any interest. Great 
Britain, notwithstanding her present enormous debt, bor- 
rows at three or four per cent., to any amount she pleases. 
Nay, so great is the public confidence in her permanency 
and integrity, that, probably, there is scarcely a civilized 
nation bn earth, which does not at present own some share 
of her national debt. The greater the civil commotions 
of other countries, the more easily can she borrow ; be- 
cause, capitalists naturally invest their propert}^ where 
they are confident of its security ; and confident that its 
interest will, under all circumstances, be regularly paid. 

II. The rate of interest is varied by the convenience of 
the investment. The convenience of an investment dte- 
pends upon several circumstances. 
46 



362 CONVENIENCE OF INVESTMENT. 

1. Facility of transfer. When a man loans capital, he 
is, of course, ignorant of the future, and does not know 
how much he may need it, at some subsequent time. If 
he loan at six per cent., for two years, he may, in six 
months, find some investment in which it would yield 
him eight per cent. ; but, having loaned it for two years, 
he cannot now withdraw it. Hence, it is a great advan- 
tage, if it can be so invested, that he may, without loss, 
recall it at any moment ; while it is yet accumulating 
interest for just so long as it remains invested. 

2. Permanency of investment. If a man does not wish 
to withdraw a loan, it is an advantage to him to have it con- 
tinue for a long period ; because, he is thus saved the loss 
of interest which would occur during the time of transfer, 
and the trouble and inconvenience of finding another 
borrower. This is of special benefit to widows, orphans, 
persons retired from business, and all those persons who 
wish not to labor with their own capital themselves, but 
only to live upon the interest of it. 

3. Punctuality in the payment of interest. It is a great 
convenience to those who invest capital, to be able to cal- 
culate with certainty on the payment of interest. They 
can thus, with ease, adjust their expenses, both to the 
amount of their income, and to the time of their receipt 
of it. If they wish to re-invest the interest, they can 
make their arrangements with certainty ; and thus invest 
it with the greatest advantage. They are also saved the 
trouble of looking after their debtor, and they avoid the 
inconvenience of that personal altercation, which is liable 
to arise respecting pecuniary transactions. 

When any form of investment possesses these advan- 
tages, men are found to prefer it to one which is destitute 
of them ; and hence, they will loan their money on these 



INTEREST DEPENDING ON PROFIT. 363 

terms, at a lower rate of interest than on any other. 
When a debt is in this form, it is said to be funded ; and 
the creditors are said to hold stock. Hence, public debts 
are generally thus arranged. The various companies, 
formed for banking purposes, and purposes of internal 
improvement, are constructed on the same principles. 
Every one who contributes a share towards the capital 
of such a company, receives a certificate that he owns 
such a share of that capital. He is entitled to his share 
of the profits at stated times. He may retain this certifi- 
cate himself, as long as he pleases ; or he may sell it, at 
any moment, to any purchaser who may want it. Hence, 
money may always be borrowed, under these circum- 
stances, at the lowest rates. 



SECTION HI. 

OF THE RATE OF INTEREST, AS AFFECTED BY THE USE OF 
CAPITAL. 

When, however, the risk is the same, we find interest 
higher in some countries than in others ; and higher in 
the same country at one time, than at another. Thus, 
when the security is equally good, interest is higher in 
this country than in Great Britain; and, in this country, 
it is higher in the new, than in the older states. And, 
we also find, that it is lower noAV, in Great Britain, than 
formerly ; and that it generally becomes less, as a com- 
munity grows older. 



364 INTEREST DEPENDING ON PROFIT. 

This shows that there must be causes of variation in 
interest, aside from that of risk. A few of these remain 
to be considered. 

I. The average profit of Capital. The profit of capi- 
tal, is that annual value which it yields to the possessor, 
after he has deducted the principal, and paid the expenses 
incident to his actual operation. Thus, if, by the use of 
one thousand dollars for a year, I am, after replacing the 
principal and all the cost of my operation, one hundred 
dollars richer, this one hundred dollars is the profit of my 
capital. Now, the greater this is at any time, the greater 
will be the sum which I shall be willing to pay for the 
use of one thousand dollars. If, by the use of capital, I 
can, after paying all expenses, realise twenty per cent., I 
can afford to pay more for the use of it, than if, after pay- 
ing all expenses, I could realise only five per cent. 

To specify the various causes on which the difference 
of profit of capital depends, perhaps would be impossible. 
Those which seem to me of the most general importance, 
are : 

1. Fertility of land. He who wished to borrow money 
to invest in agriculture, could afl!brd to pay higher interest, 
when the land produced fifty bushels to the acre, than 
when it produced only twenty-five bushels to the acre, 
provided he could procure the land for the same purchase 
money. 

2., Productiveness of industry. The use of natural 
agents, adds greatly to the value annually produced from 
a given amount of capital. This will tend to raise the 
price of capital ; since a man will give more for money to 
invest in a machine which will produce one thousand dol- 
lars a year, than in one which will produce only five hun- 
dred dollars. It is true that the influx of capital will tend 



SUPPLY AND DEMAND. 365- 

to bring any one branch of industry, in process of time, to- 
the general level. But that progressive increase of pro- 
ductiveness, which belongs to the progress of civilization, 
tends to keep up the price of capital j which would, other- 
wise, fall unreasonably low. 

3. The demand for exchange. The greater the de- 
mand for exchange, the more profitable must be that capi- 
tal which is invested in exchange. In a town where mer- 
cantile business is brisk, and a man ©an sell all his stock at 
a good profit, two or three times in the course of a year^ 
money will bear a higher interest than in a town where 
exchanges are slow, and he must keep his goods on hand^ 
for a year or two. 

II. The ratio hetioeen supply and demand. This pro- 
duces the same effect upon the rate of interest, as upon 
every thing else. Whatever be the profit of capital, if the 
supply be very small, the price will rise in proportion ; 
since he, who by employing it at a high price, can make 
a small profit, will rather so employ it, than, by doing 
without it, make no profit at all. Thus, if by the use of 
one thousand dollars for a year, I could realise five hun- 
dred dollars, I might be wilHng to pay two hundred dol- 
lars for the use of it, rather than not have it ; for, in the 
one case, I should gain three hundred dollars, and, in 
the other, I should gain nothing. If, then, there were 
but little capital in the market, and many persons were 
as willing to give this rate of interest as myself, I should 
be obliged to give it. But if, on the contrary, there were 
many persons desirous of lending, and much capital in 
the market, and I were the only person who would be 
willing to give this interest, they would underbid each 
other, and I should be able to procure it of him who 
would loan it to me at the lowest rate. I might then 



366 SUPPLY AND DEMAND. 

be able to borrow it for one hundred and fifty, one hun- 
dred, or sixty dollars per annum. 

Hence, the rate of money will vary in any country, 
according to the effect of these two circumstances. In a 
new and prosperous country, interest is always high. 
This results from several reasons. 

1. Land is very cheap, and, at first, is all of very nearly 
the same market price. In many cases, it can be had for 
almost nothing. 

2. Land is very fertile. The produce of a soil when 
new is generally greater than ever afterwards. 

3. The soil, never needing manure, requires but small 
investments of capital, and these are very richly repaid. 

4. The inhabitants of a new country can carry with 
them but few of the conveniences of life. These must 
be purchased after they arrive there, and they must either 
be made on the spot, or be imported. To do either, re- 
quires capital. And, as the demand for these conveniences 
is imperative, and, as the income of land is abundant, the 
settlers are willing to pay a high price for them. Hence, 
the profit, both of mechanical labor and of exchanges, is 
very great ; and the price which is paid for capital is very 
high. 

5. The inhabitants of a new country have generally 
very considerable exchanges with the aborigines. Such 
exchanges are exceedingly profitable. But these cannot 
be carried on without capital ; and, of course, capital, on 
this account, always bears a very high price. 

On the contrary, the supply of capital, in a new country, 
is generally small. 



SUPPLY AND DEMAND. 367 

1. Emigrants are, by no means, the most wealthy 
classes of a community. Those who are living in peace 
and prosperity at home, are not generally those who are 
most willing to brave the perils and hardships of the 
wilderness. 

2. Those who are not disposed to expose their persons 
to the hardships of a new country, are not disposed to send 
their capital where they are not present to watch over it 
themselves. Hence, it is difficult, for a while, for a new 
people to borrow ; and they can overcome this difficulty, 
only by the payment of high interest. 

These are, as I suppose, the causes of the high rate of 
interest in new countries, on the borders of civilization, 
and generally, wherever savage and civilized nations inter- 
mingle. 

As a country becomes settled, however, these causes 
begin to operate less powerfully ; and thus, the rate of 
interest gradually diminishes. 

1. The annual produce of the earth is, year after year,-- 
changed into fixed capital ; and thus, the demand is sup- 
plied from themselves. 

2. The fertility of the soil diminishes, so that it will- 
afford to pay less interest. 

3. Land is sold at different prices, according to its fer- 
tility ; and, as it rises in price, the degree of profit to the 
purchaser is diminished. 

4. The wants of the natives are supplied ; and, hence, 
one source of gain is dried up. 

5. A more perfect knowledge of the country, and more- 



368 FREEDOM OF CAPITAL. 

j)erfect confidence in its prosperity, diminish the unwil- 
'lingness of persons in older countries to loan ; and hence, 
^capital from abroad, may be procured with greater facility. 

Hence, the gradual operation of these causes, must tend 
to reduce the rate of interest in different countries to the 
same average. 

Hence, we see that the constant tendency of civilization 
is to the reduction of the rate of interest. As capital becomes 
more abundant, in proportion to the uses that are to be made 
of it, it commands a less price ; that is, a man can gain less 
than formerly with a capital of one thousand dollars ; and 
hence, he is willing to pay a less interest for it. But, it is 
also to be remembered, that a much larger proportion of 
men is worth one thousand dollars than formerly, and 
that, for one that was worth one thousand dollars fifty, 
years ago, there are fifteen or twenty who are worth ten 
thousand dollars now : that is, men, with the same labor, 
are able to secure as many, or more comforts, than formerly; 
but they are obliged to do it by the use of a larger amount 
of capital. They are obliged to labor with a larger capital, 
but that large amount is more easily procured, than a less 
amount was formerly. Hence, we see that the complaint 
so frequently heard of the increasing difficulty of accumu- 
lating property, is really unfounded ; and that, taking the 
difficulty or ease of procuring capital into the account, the 
more advanced periods of society are the most favorable to 
the industrious classes. 

in. The rate of interest is affected hy the freedom of 
capital. By freedom of capital, I mean the unfettered 
liberty of the individual to employ his capital in any inno- 
cent way that he pleases. When this liberty is enjoyed, 
every one chooses that way in which he supposes that he 
shall be most successful ] that is, in which he will reap 



INTEREST AFFECTED BY TAXATION. 369 

the largest profit. The larger the profit he realizes, the 
larger will be the interest which he will be willing to 
pay. When he is obliged to withhold it from a mode of 
investment which he prefers, and to employ it in one 
which he does not prefer ; he must, therefore, divert it 
from a more, to a less profitable mode of investment. 
Hence, as he is obliged to employ it in a less profitable, 
instead of a more profitable investment, he can afford to 
pay less interest ; and the price of interest, by the effect 
of this interference, must fall. Such must be the effect 
of all monopolies, and of all means by which the active 
power of capital is diminished. 

IV. The rate of interest is affected hy taxation. A tax 
abstracts its whole amount realized, besides the cost of col- 
lecting it, from the annual profits of capital. If a mechanic 
realize, from a capital of one thousand dollars, a nett saving 
of one hundred and fifty dollars, and is obliged to pay fifty 
dollars of this sum in taxes, he is in the condition of one 
who, without being obliged to pay taxes, realized a saving 
of only one hundred dollars. Hence, he would be able, 
if he conducted his business upon a hired capital, to pay 
only a diminished rate of interest. And, if it be said that 
he may raise the price of his labor, and thus repay him- 
self, it may be answered: 1st. By raising the price of his 
labor, he diminishes the demand, and his profits are thereby 
reduced, so that he will be no better able to pay the former 
interest. And, 2dly, as other men, being taxed, will raise 
their prices, he is obliged to pay more for every thing that 
he consumes ; and thus, again, his ability is lessened. 
Every one must see, that the immense sum which Great 
Britain annually pays,, as the interest of her national debt, 
is so much abstracted from the profits of her capital ; and 
that the amount of profit to the individuals must be 
greater, just in proportion as that is diminished ,• and 

47 



370 INTEREST AFFECTED BY TAXATION. 

that the profits of the capitaUst and the producer Avould 
rise accordingly. 

From what has been said above, we come to the fol- 
lowing general conclusions : 

1. That, other things being equal, interest will be high, 
when the risk is great ; and low, when the risk is small. 

2. That interest will be high, when the profit of capi- 
tal is great ; and low, when the profit of capital is small. 

3. That both of these affect each other, within certain 
limits; that is, when profit is great, if the risk be also 
great, interest Avill be very high ; because, the increase 
of risk diminishes the supply. 

4. But, when profit is low, and risk is great, there will 
be no loaning whatever; because, what is paid for risk, 
will be more than can be gained by use, and, hence, men 
could not profit by borrowing. 

5. And, hence, we sec that the rate of interest will be 
always affected by every circumstance, which affects 
either risk or profit of captal. War, or the rumor of 
war, by increasing the risk, raises the rate of interest in 
property affected by it. In property not affected by it, 
the same cause depresses the rate of interest ; because it 
diminishes the, means and opportunity for production, 
and, of course, diminishes the profit of capital. On the 
other hand, the discovery of any new mode of profitably 
employmg capital, raises the rate of interest, by creating 
an increased demand for capital. 

6. And hence, again, we see that the rate of interest, 
at any particular time or place, is not of itself any indica- 



INTEREST AFFECTED BY TAXATION. S71 

tion of the prosperity, or of the decline, of a country. The 
indication is to be songht for, not in the rate of interest, 
but in the cause by which that rate is aifected. 

1. Whenever the rate of interest is raised by increaGS 
of risk, this is an indication of adversity. Rise of interest, 
from such a source, benefits no one. It is of no service 
to the lender, because he receives no profit from the pre- 
mium which insures him against loss. It is as profitable 
for him to loan for five per cent, without risk, as to lean 
for ten per cent., when five per cent, is for risk, and five 
per cent, for use. It is an injury to the borroieer, because, 
one hundred dollars are worth no more to him when he 
pays fi\e per cent, for risk, than when he pays nothing 
for it. Vv^hatever, therefore, is paid for risk, is always a 
loss to both parties ; and the more that is thus paid, the 
worse it is for both. Hence, the rise of interest caused 
by bad government, civil commotion, revolutions, wars, 
and general immorality, is always an indication of national 
decline ; and the fall of interest, produced by the contrary 
causes, is an indication of national prosperity. 

2. On the other hand, the temporary rise of interest 
caused by increased productiveness, and the development 
of new national resources, is an indication of national 
prosperity. It shows that some more than ordinarily valu- 
able modes of employiug capital have been discovered, 
and, that men can afi"ord to pay a larger price lor the use 
of capital. I have, however, called this a temporary rise ; 
because, a rise from such a cause, will soon eqaalise itself. 
Increased productiveness will soon supply capital, or it will 
be imported from less favored countries. Thus, in new 
countries, the rate of interest is high ; but this is by no 
means an indication of adversity, for such countries, while 
paying so high a rate for capital, yet grow rich faster than 
those from which the^'' borrow. 



372 OF LEGAL RATE OF INTEREST. 

3. Again : The gradual fall of the rate of interest caused 
by the diminution of risk, and the greater abundance of 
capita], is an evidence of prosperity. It shows that a 
larger proportion of the means of subsistence is falling to 
the share of every individual ; that every man can more 
easily procure capital ; and that every man, in order to 
support himself, produces a larger amount than formerly, 
of whatever will contribute to the comfort and convenience 
of his neighbor. 

4. On the other hand, the fall of the rate of interest, 
caused by a suspension of the means of production, is an 
evidence of national adversity. Suppose a war to occur 
between this country and France. The capital now em- 
ployed in transportation, must be almost wholly unpro- 
ductive. The capital employed in producing our exports 
to that country, must also be useless. Hence, the rate of 
interest would fall ; for, many men would have no busi- 
ness in which to employ their capital. The case would 
be the same, were a fall in the price of capital to proceed 
from civil commotion, or any similar cause. And, the 
adversity would remain, until the cause were removed. 
For, if capital were removed out of the country, until, 
from reduction in the supply, the rate of interest rose, the 
industry of the country would still be depressed, until, by 
peace, order, and good government, it regained its natural 
advantages. 

Hence, we see that, in order to form any correct opinion 
respecting the condition of a country, from the present rate 
of interest, we must always seek for the causes of that 
rate, instead of deciding from the mere rate itself. 

It is almost unnecessary, after what has been already 
advanced, to state that, in the view of the political econo- 
mist, laws regulating the rate of interest are injurious to 



OF LEGAL RATE OF INTEREST. 373 

the prosperity of a country. Some of the reasons for this 
opinion, are the following: 

1. Such laws violate the right of property, A man has 
the same right to the market price, of his capital, in money 
as he has to the market price of his house, his horse, his 
ship, or any other of his possessions. 

2. The real price of capital cannot be fixed by law, any 
more than the real price of flour, or iron, or any other com- 
modity. There is, therefore, no more reason for assigning 
to it a fixed value, than there is of assigning a fixed value 
to any other commodity. 

3. The price of capital, or money, is really more variable 
than that of any other commodity. Most other commodi- 
ties have but one source of variation, namely, use or profit. 
But capital, in the form of- money, is liable to two sources 
of variation, nsA:, and use. These vary, at different times, 
in different investments, and with different individuals. 
There is, therefore, less reason why the price of money 
should be fixed by law, than why the price of any thing 
else should be so fixed. 

4. These laws, instead of preventing, give rise to great 
and disastrous fluctuations in the price of money. 

Suppose that, to-day, money is worth, in the ordinary 
operations of business, ten per cent., and it is worth six 
per cent, in loan. A man will as soon loan, as employ it 
in business, if he have more than he wishes to use. There 
will then be a fair supply of money in the market. But, 
let the profits of capital rise, so that, in the ordinary ope- 
rations of business, capital is worth twenty per cent. If, 
now, the rate of interest rose with this increased rate of 
profit, the same individuals would be as wilhng to loan. 



374 OF LEGAL RATE OF INTEREST. 

as before ; and thus, the supply following the demand, 
there would arise no peculiar scarcity. The high rate of 
interest, would also attract capital from abroad ; and thus, 
in a very short time, it would, in this particular place, be 
brought to the general level. 

But, suppose that six per cent, were the highest legal 
rate of interest, and that he who loaned at a higher rate, 
was liable to lose both his principal and interest, and also 
his mercantile character. In this case, as soon as the 
profit of capital in business rose to fifteen or twenty per 
cent., no one, who could thus employ it, would loan it at 
six per cent. Hence, as soon as it thus rose, the supply 
would be immediately diminished; and this would, of 
course, cause a greater rise of interest. Those who, from 
honor or conscience, obeyed the laws, would withdraw 
from the market, and employ their capital in some other 
way; and no one would loan, but those who were wil- 
ling to risk the consecpiences of detection. These, having 
the money market in their own hands, will, of course, 
charge for the use, and for the risk of detection; and, 
hence, the price, in a few days, may become doubled or 
trebled. And, at the same time, although the real value 
of money may be fifteen or twenty per cent. ; yet, because 
the legal price is six per cent., there is no inducement for 
capital to come in from abroad, to supply the demand. 
Hence, the change in the money market has, by reason 
of this law, no tendency whatever to regulate itself. 

Hence, I believe all enactments establishing a legal 
rate of interest, are injurious, and unwise. The only 
enactment of any value would be, one which should 
define the usual rate, when nothing was said on the sub- 
ject in the contract. The use of this would be, to pre- 
vent disputes. This is always an advantage to both 
parties. 



NATURE AND PRICE OF STOCKS. 375 

I shall conclude this chapter, with a few remarks on 
the nature and price of stocks. 

I have already remarked, that, when a company is 
formed for any purpose requiring capital, and yielding 
interest, the capital is divided into portions called shares, 
and, that any one has a right to subscribe for as many of 
these as he pleases. If the shares, for instance, are one 
hundred dollars each, he who takes one share, pays one 
hundred dollars, and so of any other number. For every 
share, he receives a certificate of ownership, and, so long 
as he owns this certificate, he is a member of the com- 
pany ; his proportion of the capital is governed by the 
laws of the company ; he is entitled to the same rights as 
the rest ; and receives his proportion of all the profit. 
These certificates are called stocks. They are trans- 
ferable, like any other property, and the owner, as in any 
other case, sells them, if he wishes to do so, for whatever 
they will bring. The owner for the time being, is the 
stockholder ; is arnenable, in his proportion, to all the 
rules of the company ; and is entitled to his proportion of 
all the benefits accruing from the use of the capital. 
Such is the nature of bank, insurance, railroad, canal, 
and other stocks. 

The same principle is frequently applied to loans. Sup- 
pose a government wishes to borrow five millions of dol- 
lars at five per cent., for twenty years, the interest to be 
paid quarterly. The conditions of the loan are specified, 
and subscription books are opened, in different places 
throughout the nation. The whole sum is divided into 
shares, of which every one may subscribe for as many as 
he will. Every subscriber thus, in fact, loans the govern- 
ment, on the terms proposed, as much as he subscribes 
for. When his subscription is paid, he receives a certifi- 
cate, which contains an obligation of the government to 



376 NATURE AND PRICE OF STOCKS. 

pay the money at the appointed time, and which entitles 
him to receive the interest for the sum which he has 
loaned, at the rate and times specified. These certifi- 
cates are also called stocks, and are transferable, like any 
other property. Hence, they are an article of merchan- 
dise, like any thing else ; and, as persons are wishing 
both to buy and sell, every day, they are every day 
bought and sold, in great numbers, iri all commercial 
capitals. 

Now, suppose money to be loaned in this way ; it is so 
much capital at interest, and it is affected by the same 
circumstances as other capital at loan. As the con- 
venience of investment is, however, in all cases the 
same, the rate, at which such stocks sell, will be aff"ected 
wholly by profit and risk. 

1. Supposing the risk to be the same ; these stocks are 
affected by the profit annually paid on the investment. 
Thus, suppose the risk to be nothing, and the common 
rate of interest in a community to he six per cent. If I 
own a share equal to one hundred dollars, and it pay six 
per cent, interest, this share will always sell for one hun- 
dred dollars. Suppose that the ordinary rate of interest 
being the same, this share pays twelve per cent, interest. 
I can then sell it for two hundred dollars ; because, he who 
pays two hundred dollars for it, will receive interest at the 
rate of six per cent., which is as much as he Avould 
receive from any other investment. On the contrary, if 
this share paid but three per cent, interest, I could get 
but fifty dollars for it ; since three dollars is the interest 
of no more than fifty dollars. Tlius, other things being 
equal, the price of stocks will always depend upon the 
interest which they pay ; and they will always sell for 
that sum, of which the interest or dividend which they 
pay is the regular interest. 



NATURE AND PRICE OF STOCKS. 377 

This, however, is sometimes affected by the anticipa- 
tions of men. A stock which pays very httle noiv, may 
he expected to pay Jargely, at some future time. Its price 
will, therefore, be kept up by this circumstance. On the 
other hand, a stock may pay largely now, but there may 
be a fear that it will soon be worthless ; this will, of course, 
depreciate it in value. 

So, also, of risk. The profit of stocks being the same, 
their price is inversely as the risk. If a stock pay the 
usual interest, but is in danger of sinking the principal, it 
will be depreciated accordingly. If a government pay 
good interest for a loan,, but there be danger that it will 
be overturned by a revolution, the stock will, of course, 
fall. Thus, insurance stock never rises to the value of 
bank stock, when it pays the same interest, on account 
of the greater risk. Thus, also, steam-boat stock may pay 
twenty or thirty per cent., and yet sell at no advance j that 
is, it will be at par, because of the danger from fire and 
other accidents, and from the rapid wear of the principal. 

It is by circumstances like these, that the prices of 
stocks are determined. When a stock sells for what it 
cost ; that is, when a hundred dollars worth of the original 
shares, sells for one hundred dollars, that stock is said to 
be at par. When it sells for more than this, it is said to 
be above par ; and when it sells for less, it is said to be 
below par. Thus, if stock be sold for thirty-seven per 
cent, above par, a share that cost one hundred dollars, 
sells for one hundred and thirty-seven dollars ; that is, 
one hundred dollars receives an interest, which, at the 
ordinary rate of money, is as much as one hundred and 
thirty-seven dollars would receive. And so of any other 
case. 



48 



378 NATURE AND PRICE OF STOCKS. 

Now, it must at once be perceived, that the opinion of 
the vakie of stocks is made up very much from expecta- 
tions of profit or loss, or anticipations of increase or dimi- 
nution of risk. Hence, a rumor of a war ; of the failure 
of a company, or of a bank ; of the probable insolvency 
of a government ; or the news of the gain or loss of a 
battle, may make a very considerable difference in the 
price of those stocks which would be affected by such 
information. Hence, the great liability to fraud, in all 
the operations of the stock market. If a capitalist can get 
up a rumor which will depress any stock two per cent., 
and buy one hundred thousand dollars' worth, during this 
depression, he may sell it again the next day for its original 
value, and thus, in the course of twenty-four hours, realize 
two thousand dollars, without either risk or trouble ; while 
the unfortunate seller is cheated out of this amount, without 
reason and without remedy, I do not say that all rumors 
affecting the price of stocks are thus fabricated. I only 
say, that such is the liability ; and it is not very unlikely, 
that what can so readily be done, has actually happened. 
And, when such rumors actually arise without collusion, 
it requires great sagacity to judge of the probability of 
their truth, and thus to buy or sell, according to the true 
judgment to be formed from the facts actually in posses- 
sion of the community. 

And besides this, another method may frequently be 
resorted to, for the sake of transferring money from the 
pockets of one class of citizens, into those of another class. 
Suppose a particular stock to be worth no more than fifty 
per cent. ; that is, to be capable of yielding no more than 
three per cent, on the original interest. Suppose there be 
only two or three hundred thousand dollars' worth of this 
stock in the market. If, now, a few individuals of large 
wealth combine together, they may easily, by means of 
agents, buy up the whole of it, at this reduced price. The 



NATURE AND PRICE OF STOCKS. 379 

scarcity will at once excite inquiry, and will tend to create 
some demand for it. If, now, by means of other agents, 
they put small quantities of it into the market, and buy it 
in, themselves, at gradually increasing prices, every one 
will become desirous of buying this stock, which, for a 
succession of days, has been rapidly rising in value. By 
careful management, it may thus be raised, in a few days, 
to seventy-five or one hundred dollars per share. If, then, 
these present owners carefully keep up the price, by buy- 
ing and selling until they have disposed of the whole of 
their purchase, they will, in a few weeks, find themselves 
to have doubled their money. In the mean time, the 
cause of this rise having been removed, the effect ceases, 
and the present holders, who have purchased at seventy- 
five or one hundred dollars a share, find that their stock 
is worth no more than fifty per cent. Thus, fifty dollars 
per share, is, with great adroitness, transferred from the 
pockets of the many, into those of the few, and many are 
ruined, while a few are rendered enormously rich. I 
again say, that the rise and fall of stocks, are not always 
to be attributed to such causes. But, every one sees that 
such events are liable to happen. It is, moreover, said 
by some persons, that they actually have happened. Of 
the honor or the honesty of such a transaction, it is not 
necessary here to speak. We will only take occasion to 
remark, that it behoves the uninitiated, wha wish to escape 
these dangers, to be somewhat careful how they speculate 
in stocks. 



CHAPTER THIRD. 

OF THE PRICE OF LAND, OR RENT. 

As the principal demand for land, is for the purposes of 
agriculture, we shall first consider Rent, specially with 
reference to this form of utility. 

Land is the instrument, by which the farmer produces 
the various vegetable and animal substances, which he 
offers in exchange. 

Like any other valuable instrument, it of course com- 
mands a price according to its productiveness. He who 
hired a loom, would pay more for a loom with which he 
could weave twenty yards a day, than for one, with which 
he could weave but ten yards a day. The case is the same 
with land. 

Now, the productiveness of land is made up of two 
things : 1st. Fertility ; and, 2dly. Situation. 

1. Fertility. We all know, that the productiveness of 
different soils is very diverse. Some soils will produce 
thirty, or forty, or fifty bushels of wheat to the acre, 
while others Avill produce, at the cost of more labor, not 
more than ten or fifteen bushels to the acre. Some, soils 
will produce the most valuable vegetables ; and others, 
only the most common, and comparatively valueless. 



PRICE OF LAND, OR RENT. 381 

Some soils will produce no wheat whatever ; and others 
will, without manuring, produce a luxuriant crop, every 
year. Some, wholly unfit for tillage, can be used only 
for grazing ; and, even when thus employed, yield to 
their stinted flocks, but a meagre subsistence. Hence, 
we see a reason for a great diversity in the price of land. 
And we see, at once, that a farmer might more profitably 
pay a rent, for one farm, than occupy another farm for 
nothing. 

2. Situation. The products of the farmer are all bulky, 
and, of course, acquire a very considerable addition to their 
cost, by transportation. Hence, if A raise wheat, within 
a mile of a market town, and sell it for one dollar a bushel, 
and B live one hundred miles off, and bring his wheat to 
the same market, he must sell it at the same price. The 
merchant who buys wheat, can give no more than the 
market price for wheat, whether it have been raised near 
or far off. It is no more valuable to him, for having been 
brought one hundred miles. If, now, the price of bringing 
a bushel of wheat one hundred miles be fifty cents, B 
actually receives but fifty cents a bushel for his wheat, 
while A receives one dollar for his. If the farms of both 
were of equal fertility, that is, if both produced twenty 
bushels to the acre, the farm of B would be only half as 
productive as that of A; that is, he would receive only 
ten dollars per acre, while A received twenty dollars. 
This amount of difference in situation, would be the 
same as a difference of one half in fertility, or actual pro- 
ductiveness. 

Hence, we see, that, fertility being the same, produc- 
tiveness would be as situation; and, situation being the 
same, productiveness would be as fertility. And we see, 
that these circumstances would always, when opposed, 
counterbalance each other ; that is, land at such a dis- 



382 PRICE OF LAND, OR RENT. 

tance from the market that it cost one half the price of 
products to transport them, would be of the same value, 
or actual productiveness, as land of half its fertility, con- 
tiguous to a market. And, hence, in estimating the pro- 
ductiveness of land, these circumstances are always to be 
considered together. And, we see, that land of the greatest 
fertility may be so far from a market, that the cost of trans- 
portation will leave a profit insufficient to repay the cost 
of cultivation. In such a case, such land will be worth 
nothing. 

With these principles in mind, we can easily see in 
what manner rent will be paid, for the different lands in 
a country. 

1. In the first settlement of a country, land is of no 
.exchangeable value ; for every one may have as much as 
he pleases. Every one, therefore, being at liberty to 
choose for himself, will select such a portion as he sup- 
poses most productive. Under these circumstances, land 
would bring no rent ; since no one would pay another for 
.the use of that, which he could have for nothing. This 
would continue to be the case, until all the land of the 
first quality was occupied. Let us suppose, for the sake 
of illustration, that this first quality of land were capable 
of producing one hundred bushels to the acre, and were all 
contiguous to the place of settlement, and that the second 
quality of land were capable of producing but eighty bush- 
els to the acre. 

2. Suppose, now, this settlement to increase so rapidly 
that the inhabitants could no longer be supplied Avith pro- 
ducts from the land of the first class; or, that these products 
were in such demand, for the purpose of exchange with 
other countries, that these lands could no longer yield the 
requisite supply. The price of grain would rise, so that 



PRICE OF LAND, OR RENT. 383 

a farmer could support himself by lands of the second 
quality" ; and, as those of the first quality were all taken 
up, and he could obtain those of the second quality for 
nothing, he will proceed to occupy these. Although this 
quality of land would bear no rent ; for it will barely sup- 
port him ; yet, it is better than starvation, and he will 
proceed to till it. But, as soon as this is the case, the 
lands of the first quality will begin to command a rent ; 
because, it is as well for a farmer to pay twenty bushels 
a year, for land yielding one hundred bushels an acre, as 
to have land producing only eighty bushels, for nothing. 
And, yet more : As soon as land will pay a rent, it will 
at once command a price ; because, if a man wish to 
invest capital, he will be as willing to pay for land as for 
stocks, or any thing else, that sum, of which, at the or- 
dinary rate of profits, the rent would be the interest. 
Thus, if land pay six dollars a year rent, per acre, if 
money be at six per cent, interest, it is worth one hun- 
dred dollars an acre ; since six dollars is the interest of 
one hundred dollars. And so, if the occupier have the 
capital, it is as cheap for him to buy the land, and receive 
the interest himself, as to hold the money himself, and 
pay the interest to another. 

3. Suppose, now, the price of grain, either for home, or 
for foreign consumption, to have risen so much, that the 
lands of the third quality, or producing sixty bushels per' 
acre, could now be tilled, and support the agriculturist. 
As soon as this became the case, lands of the second 
quality would yield a rent and would bear a price ; be- 
cause, it would be as profitable for a farmer to pay tAventy 
bushels a year for land of eighty bushels, as to cultivate 
land of sixty bushels for nothing. And, as soon as land 
of the second quality brought a rent, the rent of land of 
the first quality would also sustain a corresponding rise. 
It would be as cheap for a farmer to pay forty bushels a 



384 PRICE OF LAND, OR RENT. 

year for land of one hundred bushels, as twenty for land 
of eighty bushels, or as to have land of sixty bushels for 
nothing, 

4. It is evident, that as the settlement of the country 
advanced, rent and the price of land would go on augment- 
ing, according to these principles. Land, which will 
merely support the cultivator, will bear no rent. But, 
all land of a greater productiveness than this, will yield 
some rent; and, this rent will be precisely as its produc- 
tiveness exceeds that of the poorest soil which is worthy 
of cultivation. And, so soon as any soil is tilled of a 
poorer quality than any which was tilled previously, all 
the soils of a better quality will rise in rent, and in price 
accordingly. 

5. Suppose the land of any nation to be limited by 
situation, or by territorial lines ; it is evident that the 
demand for food, increasing with the increase of the 
number of inhabitants, the land would, of course, become 
all occupied. As soon as the poorest land was capable of 
yielding something, besides supporting its inhabitants, it 
would also pay rent. And thus, as before, the price and 
the rent of land would go on increasing, until it was 
arrested by some counteracting cause. Such causes are 
the following : If the grain were exported, its rise of price 
would gradually limit the foreign consumption ; since 
other nations would begin either to raise it themselves, 
or else to procure it elsewhere. Or, if trade were free, as 
soon as its price rose so high that the nation itself could 
procure its supplies cheaper abroad than at home, it would 
import it instead of raising it. As soon as this became the 
case, the price of grain would rise no higher ; and, at what- 
ever rate of rent land may have been when this change 
took place, from this time it would, at that rate, remain 
stationary. 



PRICE OF LAiND, OR RENT. 385 

6. It is, however, to be observed, that this effect upon 
the occupation of land, would be rather a change in the 
manner of use, than in the utility of the land itself. It 
is evident that it could affect the demand for land, only 
for the production of those commodities that are capable 
of distant transportation, such as bread stuffs in general. 
But a very large part of the productions of the earth are 
not capable of such transportation ; such are butcher's 
meat, which forms so large a portion of the food of man ; 
green vegetables ; milk and butter ; and the food of ani- 
mals, both for slaughter and labor. Now, just in propor- 
tion as a population increases, the demand for all these 
will increase likewise. Hence, it is reasonable to sup- 
pose, that as the importation of foreign grain checked the 
growth of domestic grain, the increased demand for these 
other domestic products, would keep the prices of land in 
a state of progressive increase. 

Nay, more. It is evident that the demand for these 
recent and untransportable productions of the earth, must 
be in proportion to the number and the wealth of the 
population. We have already shown, that the number of 
the population must be as the means of subsistence. 
Hence, the cheaper gram and bread stuffs are, the more 
rapid will be the increase of population, and the greater 
will be the demand for those products, of which the agri- 
culturist at home must, from his locality, enjoy the mono- 
poly. Hence, it may reasonably be doubted, whether the 
corn laws of Great Britain, of which the object is, to keep 
up the price of land, and to sustain the agricultural interest, 
have really had this effect; and, whether they have not, 
in reality, had the contrary effect. Had the price of corn 
been as low as it might have been, for the last fifty years, 
but for the duties on imported grain, the population of 
Great Britain would have been probably doubled, both 
from the greater cheapness of living, and also from the 

49 



3S6 PRICE OF LAND, OR RENT. 

stimulus given to her manufactures, by the diminished 
price of all her products. In this case, the increased 
demand for all the recent productions of the earth, would 
have been more than equal to all the good which even the 
agriculturist is supposed to have reaped, from the exclu- 
sion of foreign bread stuffs. If this be so, it is another 
illustration of the universal law, that a selfish policy 
always in the end defeats itself; and reaps its full share 
of the gratuitous misery which it inflicts upon others. 

7. From the view which has been taken, it would at first 
seem, that the point of earliest settlement of a country, 
or at least its maritime frontier, would be its centre, where 
land would be of the highest price ; while all the lands of 
the interior, in proportion as they receded from it, would 
gradually decrease in value, until the cost of transportation 
of products, at last reduced their value to nothing. Such 
would be the case, were it not for various circumstances, 
which greatly modify this result. Some of these modify- 
ing circumstances, it may be proper here to notice. 

1. As a people thus spread over a large territory, and are 
devoted to agriculture, it becomes necessary that other 
persons should devote themselves to manufactures, and 
to exchanges. Those who are thus employed, by neces- 
sity collect together, into towns and villages. Thus a 
large portion of the population arises, which raises nothing 
from the earth ; and hence, their wants must be supplied 
by the agriculturists in their neighborhood. Hence, im- 
mediate markets for produce, are created in every district ; 
that is, although the farmer cannot remove his farm nearer 
to the market, the market has removed nearer to him ; and 
the diminution of distance has increased the productive- 
ness of his farm, as much as though its fertility had been 
increased, or it had been removed to the sea-board. It is 
not fifty years, since land in the vicinity of Utica, New 



PRICE OF LAND, OR RENT. 387 

York, was valuable only for raising produce, which was 
sent to the city of New York, by the way of Albany ; 
and the rent, and consequent price of land, depended on 
what could be made by a harvest, after deducting from 
the market price of wheat, in New York, the cost of 
transportation between the two places. But, while the 
land has remained uninoved, population has moved toward 
it ; and Utica itself is a populous city, demanding for its 
supplies, the productions of all the surrounding country ; 
so that land, in its vicinity, bears, I presume, a very con- 
siderable proportion to the price of land in the vicinity of 
the city of New York itself 

2. I have mentioned above, that productiveness of land, 
depended not only on fertility, but also on situation, or 
facility of communication with a market. Fertility being 
given, productiveness will be as situation ; that is, the 
greater the ease of transportation, the greater the actual 
productiveness; and of course the higher the value of 
land. Thus, if land produce one hundred bushels per 
acre, and it costs half its market price to convey it to the 
place of sale, it is only as valuable as land of half its fer- 
tility, contiguous to the market. If then, the cost of 
transportation can be, by any means, reduced, the pro- 
ductiveness of lands affected by this reduction will rise 
in proportion. If, when the price of wheat is a dollar, it 
costs fifty cents to transport it, and the cost of transpor- 
tation can be reduced to twenty-five cents, it is as good 
to me, as if the price had been raised twenty-five per 
cent., or my land had increased twenty-five per cent, in 
fertility. Now, in the progress of a country, a great im- 
provement is generally affected in roads, and ordinary 
modes of transportation, by which the value of the lands 
at a distance is generally enhanced- This result is how- 
ever signally effected by canals and railroads. The effect 
of these means of transportation is, to raise the prices of 



388 PRICE OF LAND, OR RENT. 

products 111 the interior, and of course the price of land in 
general, in the manner above stated. A very intelligent 
gentlemen of Geneva, New York, informed me, that, in 
the year 1821, the price of wheat in that town was thirty 
one cents per bushel. In 1822, the price was thirty seven 
and a half cents. The canal was opened during the 
next year, and it rose to sixty-two and a half cents. It 
has never since fallen below this latter price, and at the 
time of the conversation 1835, it was selling at one dol- 
lar and thirty-one cents per bushel. The price of land, 
of course, has risen in proportion. And this change has 
been for the benefit of all parties. The farmer is greatly 
enriched ; the laborer is better paid, a great number of 
persons are very profitably employed and supported by 
labor on the canal, and wheat has been sold at a lower 
price to the consumer, than ever before. 

So far as we have treated of this subject, we have 
considered the fertility of land, as, on an average, equal ; 
and the facility of communication gradually diminishing, 
with the increase of the distance. Under these circum- 
stances, it is manifest, that the price of land, in the inte- 
rior, could not rise, unless the price of land on the sea- 
board had first risen. And, as land came into market, far- 
ther and farther from the older settlements, it would al- 
ways indicate a rise of price in the land which had first 
been cultivated ; or in the most favored localities. 

But it is manifest that the case may be far otherwise. 

1. The land in the interior maybe much the most fer- 
tile, and may enjoy the most favorable climate. The \\\- 
creased fertility , will, of course, counterbalance within a 
certain limit, the inconvetiience of situation ; and mildness 
of climate, will render a less exertion necessary to procure 
the necessary provisions for the sustentation of animal 



PRICE OF LAND, OR RENT. 38!) 

life. Hence, the profit of labor will be greater, and the 
difference, in these respects, may be such, as to counter- 
balance entirely, within a given distance, the disadvan- 
tages of position. In this case, the interior will be settled 
without advancing the price of land on the sea board. 
The advantages of both, though dissimilar, are, so far as 
productiveness is considered, equal ; and, of course, there 
is no reason why any one should pay any thing for a 
choice. 

And, secondly, as I have shown before, the difficulty 
of transportation may be so reduced, that it forms but a 
small part of the cost of whatever is raised in the interior. 
When it costs but a few cents more a bushel, to transport 
wheat three hundred miles than fifty miles, and the 
fertility of land three hundred miles from the market is 
twice as great as that in the vicinity, it is evident, that 
the productiveness of land three hundred miles off will be 
greater than of that only fifty miles from the market. 
Hence, the price of the one might rise, without producing 
a rise in the price of the other. Nay, it is evident, that it 
might produce a contrary effect. If a farmer in the inte- 
rior could raise wheat at a fair profit, and bring it to 
market for one dollar a bushel, and the farmer in the 
neighborhood of the market could not, at a fair profit sell 
it for less than one dollar and twenty-five cents, as the 
latter must sell his wheat at the current price, of course, 
he could not raise it at all. Hence, as a source of profit 
is cut off, the annual produce is less, and the price of land 
will fall. 

Such has been, to some extent, the course of events in 
this country. The lands on the seaboard were first settled, 
and cultivation gradually extended to the south and 
west. At first, the average fertility of the lands newly 
occupied was no greater than that of those first cultivated ; 



390 PRICE OF LAND, OR RENT. 

and the price of the old lands rose, as the new lands were 
occupied. By degrees, cultivation passed over the Alle- 
ghany mountains, and entered the Valley of the Missis- 
sippi. Here the soil is exuberantly fertile, and the climate 
mild ; but, the difficulty of communication with the in- 
terior, operated as a severe check upon the growth of the 
new States, and the price of lands in the old States 
was not materially affected. As soon, however, as the 
use of steam opened the navigation of the Mississippi, 
the whole scene was changed. The inland States, be- 
came, in position, almost seaboard States. Their fertility 
was relieved from the inconveniences of position, under 
which it had formerly labored ; and the productions of a 
new and rich soil could be brought to market, with as 
little cost for transportation, as that, of lands within one 
or two hundred miles from the sea board. The result 
has been, that the western farmers have undersold the 
farmers of the north and east ; and now, but little wheat 
is raised in any part of New England. This result has 
been increased, by the vast emigration to the west, which 
has diminished the number of laborers ; and at the east, 
by demand for laborers for manufactures and internal im- 
provements, which has withdrawn men from agriculture, 
and raised the wages of agricultural labor in the New 
England States. Hence, by the increased wages of labor, 
and the reduced price of grain, the profit of agriculture 
has been reduced, and the price of land has fallen. I sup- 
pose that land, at present, in New England is not gene- 
rally as dear as it was twenty or thirty 3^ears since. 

Yet, it by no means follows, that this depreciation will 
increase. The settlement of the western States creates a 
vast market for manufactures, and a vast demand for mer- 
cantile exchanges. These require capital, which is more 
abundant in the older States. The older States, also, 
have by nature, the greater facilities for such employ- 



PRICE OF LAND. OR RENT. 391 

ments. Hence, the western States will become their 
customers, and the older States will become thickly peo- 
pled with a manufacturing and mercantile population. 
Land will be in demand, for supplying the immediate 
wants of such a population, and, it will probably again 
soon rise. Each manufacturing establishment will become 
a centre, which will confer a high value on land in its im- 
mediate vicinity. By the multiplication of such centres, 
the price of the whole will be augmented. 

I have thus far considered the price of land, only in so 
far as its mere productiveness is- concerned. This will, of 
course, be the most ordinary and general cause of the va- 
riation in its price, and in its rent. There are, however, 
other circumstances, which have a material effect upon its 
value, even in the same country, and under substantially 
the same laws. 

1. Beauty of situation. Of two farms, equally produc- 
tive, many men would give a decided preference to that 
which commanded a view of the richest and most beauti- 
ful prospect, or of which the trees and shrubbery were so 
arranged, as to give the greastest pleasure to the beholder. 
For this preference, most men would be willing to pay 
a considerable additional price. This additional price, 
will increase with the wealth and the improving tastes of 
a community. This is a circumstance which should al- 
ways be borne in mind by the occupiers and owners of 
land. It costs but little more labor, to lay out an orchard 
regularly and beautifully, than to lay it out irregularly and 
clumsily. It costs nothing, to let a tree stand, where it 
adds beauty to a prospect, and it costs very little to plant 
one, where it will have the same effect. A neat and con- 
venient house, consumes neither more lumber nor nails, 
nor labor, than a slovenly and inconvenient one. And 
yet, on these differences, very much of the exchangeable 
value of a farm depends. 



392 PRICE OF LAND, OR RENT. 

2. The price of land depends much, on the intellect- 
ual and moral character of a neighborhood. 

Of two farms of equal productiveness, but in very dis- 
similar moral and intellectual communities, almost every 
one would prefer that, which, in these respects, possessed 
the greater advantages. A man who has in any degree 
cultivated his own intellect, prefers the society of those 
whose intellects are also cultivated. A parent would al- 
ways prefer a neighborhood, in which his children could 
receive the advantages of education. A man, who had 
been accustomed to religious observances, would choose 
to remove, where he could enjoy the benefits of religious 
instruction. And. every man, let his dispositions be what 
they may, will chose to reside in a neighborhood, in 
which the moral character of the people is a protection 
from dishonesty and robbery ; and where his children will 
be, as little as possible, liable to the contamination of vice. 
It is manifest, that each of these considerations, would 
form a ground of preference for one situation over another, 
and, for this preference, every reasonable man would be 
willing to pay. Were these two farms thus differently 
situated, there would be many more buyers for the one 
than for the other, and the advantage would all be on the 
side of the most intelligent and moral community. 

Hence we see, that, besides the advantages which in- 
telligence and virtue confer upon the character of a peo- 
ple themselves, there is also an additional advantage, in 
the rise of property which they produce. It may be 
fairly questioned, whether this, of itself, be not sufficient 
to repay the whole expense of literary and religious in- 
stitutions. There are towns in New England, in which, 
within a few years, the price of real estate has doubled, 
for no other assignable reason, than that of the lite- 
rary and moral advantages which they hold out to resi- 



PRICE OF LAND. OR RENT. 393 

dents. This, is a mode of increasing the vahie of property, 
which seems to me deserving of more attention than it 
has generally received. 

Land is used for other purposes besides residence, and 
agriculture. The principles upon which its value is de- 
termined in such cases, are substantially, the same as 
those mentioned above. 

1. Thus, in cities, land, for the erection of buildings, 
has a two fold value ; 1st. For dwelling houses. And, 
2dly, for ware houses, and places for the transaction of 
business. Its value, in both of these respects, depends not 
infertility^ as it is not wanted for cultivation, but wholly 
on situation. A man needs a house which will furnish 
the necessary conveniences for his family. He also 
wishes one, within a convenient distance from his place 
of employment. The farther his dwelling is, from his 
shop or his counting room, the longer time is occupied in 
passing from the one to the other, and the less are the 
conveniences of his residence. Hence, he will be willing 
to pay for the choice, and thus, the price of land gradually 
diminishes, from the centre to the circumference of a 
thickly settled town. 

But, in a place of mercantile business, edifices have 
another value, besides that of dwelling houses. They 
are needed, for the transaction of business. Where many 
exchanges are to be made, in the course of a few hours, 
every day, it is of importance that the exchangers should 
be as near together as possible. And, where a large num- 
ber of strangers, are daily collected for the sake of making 
purchases, it is important to the seller, to be so situated as 
to be in their immediate vicinity. A merchant whose 
store is in the centre of business, can easily sell ten times 
as much in a day, as one, who is half a mile off from the 
50 



394 PRICE OF LAND, OR RENT. 

centre. Hence, he is able, from the mere fact of differ- 
ence in situation, to reahze a much greater annual profit, 
in the one place than in the other. For this difference of 
productiveness, he will be willing to pay a price ; and, 
hence, in large cities, the most central situations, or as 
they are called the best stands for business, command a 
very high rent ; and a correspondent price. A few square 
feet of land in the centre of the city of New York, will 
sell for more than several hundred acres of the most pro- 
ductive soil in any part of the Union. And, as the price 
of land, in such cases, is owing entirely to the demand 
for the purposes of facilitating trade, it can only rise with 
the increasing prosperity of the place. Hence, the rise or 
fall of real estate, in any town, is one of the surest indica- 
tions of its mercantile prosperity or of the reverse. And, 
moreover, the rise of rents, in any given place, pro- 
ceeds upon the same principles as those which we have 
already illustrated. Suppose the places of business, in a 
town, to be all occupied, within a given circle, and that 
they are sufficient for the accommodation of all the mer- 
chants who need them. If the town be prosperous, in 
five years, these accommodations will be insufficient, and 
buildings without this circle will come into demand, for 
this purpose. Their rent, in consequence of this addition- 
al value, will rise. But this rise will be accompanied by 
a rise in the rent of the more favored situations. Those 
persons, whose employment requires a central situation, 
will occupy the centre, at a price which will exclude 
those, to whom such a situation is less essential, and this 
process will go on, until those who are the least able to 
come into competition, pass out of the original circle, and 
thus create a new demand and raise the price of rent as 
it has been suggested. 

2. Land frequently possesses an additional vahie, in 
consequence of its proximity to water falls. A water 



PRICE OF LAND, OR RENT. 395 

fall provides for the manufacturer, a constant supply of 
momentum, which he can use by means of very^simple 
machinery. Suppose the interest of capital employed in 
the construction of furnaces, and steam machinery, and 
the annual expense for fuel and attendance in a given sit- 
uation, were one thousand dollars, and the same power 
could be procured at the same place, by appropriating a 
water fall, by means of machinery of which the interest 
was no more than one hundred dollars ; the labor of 
the water fall would be worth nine hundred dollars 
per year. Hence, supposing it to be in a situation, 
in which there was a demand for this power, the land 
which gave the legal right to the use of it, would possess 
a value proportioned to the value of the power. Of course 
the price which it would command, would depend upon 
the annual value of the privilege. This would be deter- 
mined, by the amount of applicable power, and by the 
situation. A power sufficient to move a dozen mills, 
would be twelve times as valuable, as that which could 
move only one. A water power near the sea board, 
would be much more valuable than one in the interior. 
If it were at tide water, its annual value would be equal 
to the difference between its annual expense and that of 
steam. If it were at a distance from tide water, or the 
market, it would be equal to this difference, minus the 
expense to be incurred, in the transportation of the mate- 
rial and of the manufactured fabric. As soon as the cost 
of transportation, was equal to the difference of expense, 
between the two modes of producing power, it would be- 
come valueless ; because it would be as cheap to erect a 
manufactory at tide water, and pay the expense of build- 
ing and fuel, as to have the power for nothing, and pay 
the same expense for transportation. Hence, in the erec- 
tion of mills and the establishment of manufactures, both 
of these circumstances are to be maturely considered, be- 



396 RENT OF MINES. 

fore a situation is decided upon. For want of such con- 
sideration, much property has been totally lost. 

3. Mines. These depend upon the same principles as 
those which have been already illustrated. A water pri- 
vilege is a mine of power, a bed of ore is a mine of metal. 
The former is frequently the most valuable possession. 

Suppose a farm to be worth the ordinary price of land ; 
and the owner discovers on it, a bed of iron ore, which, 
after deducting the necessary expenses of working it, and 
paying the labor and skill necessary to the operation, will 
yield one thousand dollars a year. The farm, or the land 
necessary for the mining operations, will rent for one 
thousand dollars a year, or will sell for such a sum as will 
yield, at the ordinary rate, one thousand dollars as inter- 
est. In this case, it is manifest, that the original owner 
of the property will be a gainer by the discovery, to the 
full amount of the increase in the price of his land. But, 
here, the peculiar gain ceases. To other holders who 
may come after him, it is merely an investment, of the 
same naiure as any other investment ; and will yield no 
more than the ordinary rate of profit. 

The case is the same with a copper, a silver, or a gold 
mine. The owner of the land at the time of the discovery, 
becomes greatly enriched, in consequence of this new 
product, which may be derived from his property. But, 
after this rise, when a new pin'chaser comes into posses- 
sion, the peculiarity of the gain ceases. A rich gold mine, 
will rent, or will sell for more than a poor one, and its 
price, or its rent, will be in exact proportion to its produc- 
tiveness, just as a farm, a mill-privilege, or any other 
property. It is a somewhat remarkable fact, that mines 
,of the precious metals, are in general, singularly unprofit- 



DISTRIBUTION ILLUSTRATED. 397 

able, after they have passed out of the hands of the origi- 
nal owners. It has grown into a proverb in South 
America, that, if a man own a copper mine he will grow 
rich, if he own a silver mine he will gain nothing, but if 
he own a gold mine, he will certainly be ruined. The 
fact however may be easily accounted for. The imagi- 
nations of men are always strongly excited by the con- 
templation of the precious metals ; and it is rare that any 
thing but experience can teach them, that they may buy 
gold too dear. Hence, they do not compute the chances 
of profit in the production of gold, as coolly as they do in 
any other case. But the production of gold, is governed 
by as fixed laws, as the production of wheat. Gold can 
no more than wheat, be produced by an eilort ot the im- 
agination. It is the result of labor, and skill, and expense. 
And, if these be greater than the revenue, a man will as 
assuredly be ruined by producing gold, as by conducting 
any other unprofitable business ; his imagination to the 
contrary notwithstanding. 

Such are, I believe, the principle circumstances which 
effect the distribution of the profits of capital, and the 
wages of labor. It may be useful to illustrate the mode 
in which they operate, in an individual case. Let us take, 
for instance, a yard of calico. 

1. The price of a bale of cotton, is made up of the rent 
of the land on which it grew, the wages and expense of the 
laborers, who were employed in its cultivation, the labor 
and skill of the agriculturist, who superintends the labor, 
the cost of seed, manure, utensils, &c. He who buys the 
cotton, pays a price sufficient to remunerate these laborers, 
pay the interest on the investment, and replace the expen- 
diture for materials. He who raises the cotton, distri- 
butes the money which he has received, according to the 
principles which have been above suggested. 



393 DISTRIBUTION ILLUSTRATED. 

2. The cotton is sent by the merchant in Mobile to New- 
York, and sold at an advanced price to the merchant, in 
this latter place. This advance, is sufficient to remuner- 
ate the merchant in Mobile, and to pay the cost of trans- 
portation. The merchant at Mobile is thus paid for his 
labor and skill in selecting and stowing the cotton ; and 
for the use of his capital whilst it was invested in cotton. 
The cost of transportation, is made up of cost of investment 
in the vessel, in the wear and tear which it undergoes, 
in subsistence of mariners, and cost of insurance. This 
remuneration, is distributed as we have stated, according 
to the skill and labor of the several persons, by whom it 
has been performed. This is paid by the merchant in 
New York, and adds so much to the price of the cotton. 
When paid, it is divided between the owners of the vessel 
and the mariners, according to the laws which govern the 
wages ol labor and of capital. 

The cotton is bought by the manufacturer, who pays the 
merchant in New York, what he paid to the merchant in 
Mobile, with an addition for transportation, agency, and 
the use of capital whilst it has been in his hands. He 
removes it to his manufactory, cards, spins, and weaves it 
and prepares it for the calico printer, to whom it is next 
sold. The calico printer, pays the manufacturer, what he 
paid the merchant, and an additional sum for the value 
which he has confered upon it. This additional sum, is 
the compensation to the manufacturer. With it, he re- 
munerates himself for his use of capital, labor and skill, 
and pays his workmen, for their labor, according to their 
skill and industry. 

It now goes through the process of printing, and is then 
sold to the merchant at an additional advance. This ad- 
vance, is sufficient to replace the price paid by the calico 
printer to the manufacturers, and also to pay the calico 



INTEREST OF REAL ESTATE. 399 

printer for the use of his capital, and the labor of his 
workmen. It is by the merchant sold to the consumer. 
The consumer pays the merchant the price paid by him to 
the manufacturer, and an additional sum, sufficient to re- 
munerate him, for the use of his capital, skill, and labor. 
So that, when the article comes to the consumer, it is 
charged with all these previous prices, which have, in 
these various processes, accumulated upon it. The con- 
sumer pays what has been paid to the agriculturist, the 
mariner, the cotton merchant in Mobile, and the cotton 
merchant in New York, the manufacturer, the calico 
printer, and the calico merchant. Each several amount 
has been charged upon it in its progress, and the consumer 
at last, pays enough to replace the whole. The case is- 
the same with a watch, a knife, a plough, or any other 
article of merchandize. 

I shall conclude this chapter with two general remarks. 

I. The interest of land, or real estate in general, is 
commonly less than that of other property, that is, if any 
particular stock costs one hundred dollars, and yields as in- 
terest, but three per cent., it would not sell for one hund- 
red dollars but for fifty or sixty dollars. But land which 
costs one hundred dollars, although it yield but three per 
cent., will sell for ninety or one hundred dollars. That is, 
men are willing to receive less interest for money invested 
in land, than in other property. It may be worth while 
to suggest the reason of this difference. 

1. Property in land, is considered more secure than any 
other property. The principal may be considered indes- 
tructible. Hence it is the safest of all investments, and 
nothing is paid for the risk. 

2. The title to land can be more definitely secured, thaiY 
that of any other property. The legal instruments, by 



400 INTEREST OF REAL ESTATE. 

which it is secured to the individuals, are a matter of 
pubhc record. The boundaries of land, can be, and com- 
monly are, ascertained with entire precision. The land 
itself cannot be removed. Hence, the ownership of it, 
can be always ascertained and conveyed to posterity. 

3. Men generally derive some influence and considera- 
tion from the ownership of land, which they do not de- 
rive from any other possessions. In many places, the 
right of suifrage is restricted to landholders. Where this 
rule exists, it, of course, shows the degree of conse- 
quence which is attached to this sort of possession. And 
the fact, that it has so frequently existed, while the con- 
trary rule has never existed, shows the general tendency 
upon the subject. 

4. There is, I think, in the human race, a strong dis- 
position to become the owners of land ; and a natural love 
to the pursuit of agriculture. Men of all professions, look 
forward to some period of life, in which, relieved from the 
toils of business, they may retire to the quiet country. 
To whatever extent this disposition exists, it of course 
tends to raise the price of land, above that of other prop- 
erty, paying the same rate of profit. If a man receive a 
part of his remuneration in pleasure, he will be content to 
receive less in the form of money. 

5. And lastly the natural progress of society tends to 
increase the value of landed propert^^ This has been al- 
ready illustrated in general, in the remarks which have 
been made upon rent. And it must be evident, that land, 
remaining the same, and the population continually in- 
creasing, the demand for land must continually increase. 
And, besides this, the progress of society creates not only 
a more extensive demand for land, but a much greater 
variety of demands. As such is the tendency, men are 



EXTENT OF BUSINESS. 401 

willing to hold land at a less interest than other property, 
in the hope that the rise of price at some futnre time, 
will compensate for their present loss. Thns, men fre- 
quently invest money in wild lands, expecting to reap no 
profit from them for many years, but calculating upon a 
rise of price at some time or other, which shall abundantly 
repay both principal and interest. 

11. The second remark relates to a ditferent subject. 

From what has been said upon the nature of credit, it 
is evident that a merchant may easily carry on a business, 
greatly beyond his actual capital, and even with no capi- 
tal at all. For instance, he may sell wholly the goods of 
another, by purchasing entirely on credit. Or he may 
borrow capital of an individual, or of a bank, and pay cash 
for his stock, and interest on his purchase money. In 
this case, he uses the property of the lender, instead of the 
property of the merchant, of whom he purchases. Or, 
he may have capital, say ten thousand dollars, of his own, 
and may effect credits to twice or thrice this amount. Or 
lastly, he may employ in trade no more capital than that 
which he actually possesses. 

Now, it is manifest, that the profit must be, in these 
cases, very dissimilar. When a merchant owns all the 
capital he employs, he receives as profit, interest on his 
capital, and remuneration for his labor and skill. When 
he owns but a part, he receives interest for that part, and 
remuneration for his labor and skill in managing the 
whole. When he owns nothing, he receives nothing for 
interest on the capital, but only remuneration for his labor 
and skill in the management of the capital. 

The risk of failure, and the liability of injuring others, 
are also dissimilar. He who owns all the capital he uses, 

51 



408 EXTENT OF BUSINESS. 

can injure no one ; because, he cannot lose more than all, 
and as he owns all, he is the sole sufferer. His payments 
may possibly be delayed, but he will, in the end, be able 
to pay every one his due. 

When a merchant owns a part of the capital which he 
employs, he is not liable to injure his creditors, unless his 
loss be sufficient to absorb more than the portion which 
he himself possesses. But when a merchant trades wholly 
upon the capital of others, if his losses are more than suffi- 
cient to cover the advance due to his labor and skill, he 
must fail, and his creditors must suffer. 

Hence the moral and economical principles which 
should govern men in the transaction of business, under 
these circumstances, are somewhat dissimilar. 

1. If a man choose to squander or to risk his own proper- 
ty, though there may be a moral question in respect to his 
duty to God, there is none in respect to his duty to man. 
If he pay all his debts, no one has any claim upon him. 
Yet, so far as his own interest is concerned, he may do 
well to remember, that men will very naturally suppose, 
after having wasted all that was his own, that it will not 
be safe to trust him with what belongs to others. 

2. If a man trade with the property of another, he is 
bound so to conduct his affairs, as to expose their property 
to no risk that can be foreseen. Hence, if their guaranty 
against loss, consist in that part of his stock which he 
owns, he is bound to guard against every risk, which could 
not be made good, by the sacrifice of his own property. 
This principle affects both the kind, and the amount, of 
business which he undertakes. It should be of such a 
Mnd as is exposed to no greater risk than may be covered 
by his own property. It should be only to such an extent. 



EXTENT OF BUSINESS. 403 

that no ordinary fluctuation of business, will endanger 
those who have confided in his skill and integrity. If he, 
knowingly, act otherwise, he is dishonest. Nor is this 
all. If he really expose others to no risk, yet if he so en- 
large his business, that he is continually obliged to call 
upon his neighbors for assistance, and to throw himself on 
their mercy, to save him from loss of mercantile character, 
he trifles with his credit, and makes an unfair use of their 
kindness. A man who is always exposing himself to 
extreme risks, will generally expose himself once too 
often. 

3. He who trades upon the capital of another, should 
consider himself essentially in the character of an agent, 
and at liberty to expose the property of his principal, to 
no risk which the principal Avould not permit were he 
present ; or which an unprejudiced person would not con- 
sider reasonable. He is to remember that if he succeed, 
the owner of the property derives no benefit beyond the 
fair and ordinary profit, but if he fail, the owner suffers all 
the loss, and therefore, he has no right to seek to benefit 
himself, at the risk of impoverishing another. 

4. The same rule should govern the expenses of him 
Avho is engaged in business with the capital of another. 
He derives from his trade nothing more than the wages of 
his skill and labor. Within the amount of these wages, his 
expenses should be restricted. If he expend more, he is 
living dishonestly on the property of another. If he ex- 
pend the whole of these wages, he is accumulating no 
capital, but at the end of the year will be as poor as he was 
at the beginning. He can only become rich by reducing 
his expenses as far as possible below his income, and thus 
having, every year, something to invest as capital, which 
shall give stability to his credit, and increase to his annu- 
al revenue. 



404 NATURE AND USE OF INSURANCE. 

Of Insurance. When property of any kind is consuma- 
ble, it is liable to be consumed by accident. Thus houses, 
being combustible, are liable to be destroyed by fire. 
Ships are liable to be destroyed by storm and tempest. 
This liability is called risk. It is evident that it may, 
under given circumstances, be estimated. Thus, if we 
know the value of all the houses in a given city, and the 
amount of value in houses, which, on an average, for seve- 
ral years, has been destroyed by fire, we may estimate 
how great the risk of fire in that city is. The case is the 
same with ships, or with any other property. 

Now this risk being thus known, one person may bear 
it as well as another. If I have a ship at sea, I may eith- 
er bear the risk of losing it myself, or I may pay another 
person for bearing the risk for me. This transfer of risk 
is found convenient, and either companies or individuals 
are easily found, who, for a small addition to th*;; actual 
value of the risk, are willing to insure any property that 
may be offered. 

From this view of the case it is manifest, that insurance 
has no effect upon the fact of the loss. If a ship and 
cargo worth one hundred thousand dollars be sunk, pre- 
cisely one hundred thousand dollars' worth of value is 
destroyed. The only effect of insurance is, to make the 
loss fall upon one person instead of upon another. The 
benefit of this transfer consists in this, that the loss is thus 
equalized. It is better for a community to divide a given 
loss among a great number of persons, than to suffer it to 
fall exclusively upon one. 

And hence, inasmuch as every one has the power of 
avoiding risk, by paying a small premium ; every one 
whose property is small, and liable to be lost by a single 
accident, is culpably negligent if he suffer it to remain a 



NATURE AND USE QF INSURANCE. 405 

moment uninsm-ed. Specially is this the case, when he 
holds the property of others ; or when their only security 
for payment, depends upon the stock in trade which he 

possesses. 

And again. As insurance has no effect upon the fact of 
loss, the higher the premium of insurance the greater is the 
annual loss to a country ; because it shows us, how great 
an amount of property is annually destroyed. Hence a 
sound policy would always dictate the importance of 
taking every means to reduce the rate of insurance as low 
as possible. This can be done only by reducing the risk 
of the accidental destruction of property. On this account, 
the abundant supply of water, is a matter of inestimable 
economical importance to a city. Th'? difference in the 
amount annually paid for insurance by the two cities of 
New York and Philadelphia is enormous. Nor is this all. 
New York in one single night, has lost by fire, property 
sufficient to pay the expense of abundantly supply herself 
with water, three times over. The same principles would 
teach us the importance of accurate surveys of the coast, 
the erection of light houses, and of wise and judicious laws 
for the government of pilots. 

If the principles illustrated in the above chapter be cor- 
rect, they will lead us to a few important practical con- 
clusions. They teach us : — 

1. That the capitalist and the laborer are equally neces- 
sary to each other. And hence that all attempts to excite 
the prejudices of the poor against the rich, or of the rich 
against the poor, are no less injurious to the interests of 
both classes than they are wicked and detestable. They 
most commonly emanate from unprincipled men, who 
can rise to notoriety in no other manner than by agitation ; 
and who are willing to gratify their own lust of power at 
the sacrifice of the best interests of the community. 



406 ACCUMULATED CAPITAL. 

2. That the accamulation of capital, is as much for the 
interest of the laborer as of the capitalist himself. The 
manufacturer who is worth five hundred thousand dollars 
actually possesses but few of the real comforts of life more 
than may be possessed by one of his industrious and fru- 
gal workmen. Let it all be destroyed, and by his skill and 
industry, he could still gain a comfortable subsistence. 
But let it be destroyed, and one or two hundred families 
would be thrown out of employment ; and be thus reduced 
to poverty. Let the property of all the capitalists of a 
country be destroyed, and thousands of laborers would, in 
a few weeks, die of starvation. 



BOOK FOURTH. 



BOOK FOURTH. 



OF CONSUMPTION. 



CHAPTER I. 

OF THE NATURE AND DESIGN OF CONSUMPTION. _ 

Of the nature of Consumption. Consumption is the 
destruction of value. By this is not meant the annihila-^ 
tion of the materialj but only of a particular form of 
utility. Thus, if gunpowder be burned, if bread be eaten, 
if a tree be felled, the 'particular utility which each origi- 
nally possessed, is destroyed forever. And this destruc- 
tion of value takes place, altogether independently of the 
result, which may, in different cases, ensue; because that 
destruction is as truly effected in one case as in another. 
A load of wood, when it has been burned, as truly loses 
its utility, that is, its power of creating heat, when it is 
destroyed in a conflagration, as when it is consumed under 
a steam boiler, or in a fire place, though the result, in the 
two case-s, may be very dissimilar. If bread be thrown 
into the sea, its utility is destroyed, just as much as if it 
were eaten ; though, in the one case, there is no result 
from the consumption, and, in the other, it is the means of 
creating the vigor necessary to labor. 
52 



410 NATURE OF CONSUMPTION. 

Hence consumption, viewed simply by itself, may be 
considered in the nature of a misfortune. It is the de- 
struction of so much wealth as is consumed. A man, if 
he had his choice, would rather create one product with- 
out destroying another ; or enjoy a gratification, if it were 
possible, without rendering the thing enjoyed useless. 
But, inasmuch as it is the law of our Creator that we shall 
obtain our possessions, and gratify our desires, on no other 
conditions than that of the destruction of value, we have 
no choice. We cannot cut up a hide of leather for the 
purpose of making shoes, without destroying forever its 
utility as a hide of leather. We cannot cut down a tree, 
and saw it into, boards, without destroying forever its 
utility as a tree. We cannot enjoy the pleasure of eating 
an orange, without destroying forever the power in that 
orange of affording to any one else the same pleasure. 
And thus, in general, consumption is one part of an ex- 
change, in which we surrender one value with the hope 
of obtaining another ; and whether the hope be realized 
or not, the thing consumed is surrendered, and surrendered 
forever. 

When, however, it is said that the utility consumed is 
destroyed forever, we mean only to speak of this particu- 
la?' utility. There may yet remain some valuable quality 
which has not yet been affected. Thus, if a linen garment 
be worn out, its utility as a Une7i garment is destroyed 
forever. It may however still possess an important utility, 
as a material for the manufacture of lint or of paper. Wood 
may be consumed for fuel ; and its utility as fuel may be 
destroyed forever. A quantity of ashes however remains, 
which possesses an utility for the manufacture of soap. 
A pair of india rubber shoes, may be worn out, and yet 
possess a valuable utility to the manufacturer of india rub- 
ber cloth. Hence we see the importance, in all cases, of 
entirely exhausting all the values contained in any pro- 



KINDS OF CONSUMPTION. 411 

duct before we surrender it up as worthless. For the 
want of this care, milKons of property are annually wasted. 
The difference between the cost of two establishments, 
in the one of which every utility of every substance is 
consumed, and in the other of which, only the first utility 
is consumed, is frequently as great as the nett profits re; 
alized in the ordinary employments of industry. 

1. Consumption may be either of labor or of capital. 
A mechanic who bestows a days labor upon a table, con- 
sumes that amount of labor upon it. He also consumes 
the material upon which he has labored. He has re- 
ceived in return the table, and, if his labor and capital 
have been well employed, the result will recompense his 
consumption, both of labor and capital. So he who em- 
ploys laborers to work for him, consumes all the labor 
which he purchases. And, as every man who has skill 
and health, is capable of labor, the consumption of time 
uselessly, is the same as the consumption of labor ; since 
this time, if not wasted, either would have been, or ought 
to have been, occupied in labor. Hence we see that every 
day spent, is, in fact, so much value consu7ned. If it bring 
no profitable result, it is so much value wasted. 

2. Consumption may be either voluntary or involuntary. 
It is voluntary when it is effected by design. It is invol- 
rmtary when it is the result of accident. In either case, 
if there be consumption, there is value destroyed. The 
diiierence is, that, in the one case, there is a profitable 
result expected ; in the other case there is none. If a 
loaf of bread become mouldy by neglect, its value is de- 
stroyed, just as much as though it were eaten. The dif- 
ference is, that, in the one case, the loss is total ,• in the 
other case, the consumption of value creates a power to 
labor, which is of more value than the loaf itself. If, for 
the want of a fender, the fire fall out of the fire place, and 



412 KINDS OF CONSUMPTION. 

burn the carpet, the carpet is as eifectually consumed, 
as by the wear of several years. The difference is, that, 
in the one case, it affords a substantial convenience, and 
in the other it affords none. If, by forgetfuhiess or neg- 
lect, a gate is left unlatched, and it is beaten in pieces by 
the vi/-ind, it is as effectually consumed, as by the wear of 
several years. The difference is, that, in the one case, it 
answers for several years the purpose of inclosure, in the 
other case it answers no purpose at all. Hence, the ne- 
cessity of care and vigilance in all the business of life. 
Almost every thing is constantly tending to consumption. 
Vegetable matter decays. Animal matter putrefies. Most 
of the metals are corroded. Almost all our possessions are 
liable to accidental destruction, from fire, or flood; from the 
cold of winter or the heat of summer. Hence, without 
our continual care, a continual process of consumption will 
be going on, by which our capital will be diminished. 

3. Consumption, is either rapid or gradual. The con- 
sumption of wood for fuel is rapid. The consumption of 
wood, in consequence of the wear of a dwelling house, is 
gradual. But gradual consumption is as sure and as cer- 
tain as though it were rapid. Hence, in estimating cost 
and expenses, unless an allowance be made for wear and 
tear, our calculations will not agree with the fact. If a 
man's furniture be wearing out every year, this average of 
loss, is as much to be taken into account, in estimating 
his expenses, as the cost of the fuel which he consumes. 

The annual consumption of an individual, is the sum 
total of all the values which he destroys. Hence the mar 
terials upon which he operates, the tools which he Avears 
out, the expenses of his household, both for materials and 
for labor, are all to be reckoned as parts of his annual con- 
sumption. So, also, the values destroyed by a nation, are 
jthe national consumption. The exports of an individual 



DESIGN OF CONSUMPTION. 4l;i 

or of a nation, are a part of individual or of national con- 
sumption, since value to the full amount of the exports, is 
abstracted from the capital of the country. On the con- 
trary, the imports are the product, or what the country re- 
ceives back again in return for its exports, or consumption. 

Every man in the country is a consumer. Without 
consummg he could not sustain life a day. He must con- 
sume the food which he eats, the clothes which he wearSj 
and the dwelling that shelters him. Hence, if he do not 
produce any thing, he is an absolute and useless burden 
upon the community. If he do not produce as much as 
he consumes, he is by the whole amount of that deficiency 
an unprofitable member of the body politic. 

A man cannot, honestly, consume more than he pro- 
duces. And the more he produces, the more will he con- 
sume. Hence, the more industrious and the richer the 
community, the greater will be the consumption, and of 
course the demand. Hence, as we have said before, the 
richer the community, the better will it be for every class 
of producers. ■ . 

n. Of the design of Consumption. Consumption, as 
we have said, is the destruction of value. But no man in 
his senses, will consume value without some expectation 
of advantage. Hence, the design of consumption is al- 
ways some advantage which cannot be. obtained in any 
•other way. 

This advantage is of two kinds. 1. The increase of 
value; or, 2. The gratification of desire. 

1. The increase of value. This is the design of con- 
sumption in all the departments of industry. Thus, the 
farmer consumes seed, utensils, rent, manure, labor and 
sustenance of laborers. These all are abstracted from his 



414 DESIGN OF CONSUMPTION. 

capital, and their value is destroyed, either wholly or in 
part, forever. But he consumes them cheerfully, in the 
expectation that the crop which he reaps, will replace them 
and repay both the interest of his capital, and his various 
outlays for materials and labor, and leave him also a suit- 
able recompense for his industry and skill. 

The manufacturer, consumes raw cotton, instruments, 
machinery, and labor. The value of these various pro- 
ducts, is destroyed forever. But, by means of this 
destruction, he produces a fabric which repays all his 
consumption, and yields him a reasonable profit. 

The merchant collects the productions of this country, 
and sends them abroad in his ship. He thus consumes 
these products, and also the wear and tear of his ship, and 
the labor, skill and subsistence of his officers and crew. 
His return cargo, if the voyage have been successful, re- 
places his cargo exported, pays the expense of transporta- 
tion, and affords him a compensation for his labor and 
skill. 

And thus, in all the operations of industry, the process 
of consumption, or the destruction of particular values for 
the sake of producing other and greater values, is contin- 
ually going on. And men consume values in this man- 
ner cheerfully, because they are aware that increase of 
value is to be effected in no other way. 

2. The gratification of desire. In this case, the value 
of a product is commonly destroyed, without the antici- 
pation of the creation of any other product by which it is 
to be replaced. The purposes for which values are con- 
sumed in this manner are various. 

1. For the gratification of those desires which are 
necessary to the preservation of life and health. In tliis 



DESIGN OF CONSUMPTION. 415 

manner, we consume food, clothing, and shelter. In this 
case, there is combined with the gratification of desire, a 
substantial benefit, in the health and vigor which we de- 
rive from sustenance. 

2. The mere gratifications of the senses. These are of 
two kinds, the /operand the higher. We consume values 
in the lower gratifications of sense, when we expend mon- 
ey for shows, for mere delicacies of the table, and for any 
thing of which the only result is, the gratification of a 
physical appetite. In this case, our only recompense con- 
sists in the pleasure experienced in the organ of sense. 
The higher gratifications of sense, are those which are 
called the pleasures of taste, and which are gratified by 
painting, statuary, architecture, and music. In this case, 
besides the gratification of the taste, there is also an addi- 
tional result, in the mental cultivation and refinement, 
which such pleasures promote. 

3. Intellectual gratifications. We consume money, for 
this purpose, in the purchase of books and philosophical 
instruments, and we consume time in the study and use 
of them. We here enjoy the pleasure of intellectual ex- 
ercise, and also obtain that knowledge, by which we are 
enabled to perform the duties of life with greater success. 

4. Social pleasures. We gratify our social instincts, 
by hospitality to our friends; and thus strengthen the 
ties which bind us to the human race. 

5. Moral pleasures. In benevolence we expend money 
for the good of others. In this case, Ave receive gratifi- 
cation in the act itself, and also cultivate in ourselves 
those dispositions, which make us more worthy of the 
regard of our fellows, and more well-pleasing to our Father 
who is in heaven. 



416 DESIGN OF CONSUMPTION. 

We have said that, by consumption, value is destroyed ; 
but it is destroyed with the expectation of realizing a 
more valuable result. Hence, we see that the character 
of this consumption, is to be decided by ascertaining 
how far this expectation has been realized. If a product 
of more value than the time and labor consumed, be created 
by the consumption, such consumption is called produc- 
tive. Such is the case when a farmer consumes labor and 
capital, worth one hundred dollars, and realizes a harvest 
worth two hundred dollars. If the product be not equal 
to the consumption, such consumption is called unproduc- 
tive. If no product at all be realized, the consumption is 
then a total loss. 

And, the same principles apply when consumption is 
effected for the purpose of gratifying a desire. If no such 
result be realized, it is a total loss. If the gratification be 
of less value than the value consumed; or if we have ob- 
tained a less amount, or less excellent gratification than 
we could have procured by some other mode of expendi- 
ture, there is always a loss, although it may not be total, 
and the consumption is unwise. 

From what has been said, we may easily see the rules 
by which expenditure of all kinds should be governed. 

1. Inasmuch as consumption is a destruction of value, 
and annihilates forever the particular value which we con- 
sume, our consumption for the purpose of producing a 
given result, should be as small as possible. Whatever is 
consumed beyond what is necessary to accomplish our pur- 
pose, is so much absolute loss. 

2. The consumption being given, it should be our ob- 
ject, to derive from it as large a product^ or as valuable a 
gratification as possible. Whatever is consumed, that 



DESIGN OF CONSUMPTION. 417 

does not conduce to this result, in every way of which it 
is capable, is so much utihty thrown away. 

When these rules are perfectly obeyed, we enjoy as 
much as our circumstances allow ; and we also enjoy it, 
with as little expense to the means of happiness of others 
as the nature of the present constitution permits. 

Consumption is of two kinds. Individual and Public. 
Individual consumption, is Avhatthe individual consumes 
for his own personal proiit or gratification. Public con- 
sumption, is what is consumed by the society, for the 
benefit of the whole. 



63 



CHAPTER SECOND. 

OF INDIVIDUAL CONSUMPTION. 

The consumption of the individual, is the amount of 
Value which each individual destroys either for his own 
personal profit or for the gratification of his desires. 

Individual consumption is then of two kinds : first what 
he consumes for the sake of reproduction, and secondly 
what he consumes for the gratification of desire ; or in 
other words, what he consumes in personal and domestic 
expenditures. We shall consider these subjects sepa-- 
rately. 



SECTION I. 

OF INDIVIDUAL CONSUMPTION FOR THE SAKE OF REPRO^ 
DUCTION. 

This is the consumption, which every individual effects, 
who carries on the operations of production. The farmer, 
the mechanic, the manufacturer, the merchant are all 
consumers, and are such in a greater or less degree, accord-- 
ing to the extent of their production. 



INDIVIDUAL CONSUMPTION. 419 

Productive consumption requires both sliill and labor, 
while consumption for the sake of gratification requires 
neither. It requires labor and skill, so to consume seed and 
manure, &c., as to produce a loaf of bread, but it requires 
neither skill nor labor, to eat it after it has been produced. 
It requires labor and skill so to consume wool and dye- 
stuffs as to produce cloth ; and so to consume that cloth 
as to produce a suit of clothes, but it requires no skill or 
labor to wear them out after they have been produced. 

On the other hand, consumption of which the design is 
prodnction, is commonly attended with no immediate 
gratification. The farmer may prefer agriculture to man- 
ufactures, but he would not commonly labor for the mere 
pleasure of the operation. Could he secure his crop with 
half the present labor, or with no labor at all, he would 
doubtless do so. The case is the same with the manu- 
facturer, or any other producer. 

Now, these two things are manifestly set over against 
each other, by the law of our Creator. We cannot use 
the same value for these two distinct and opposite pur- 
poses. If a man consume one hundred dollars in amuse- 
ment, or in ostentation, he cannot have it also as capital, 
to be employed in his trade. And, not only can he not 
have it noio, but he can never have it again. If it be in- 
vested in reproduction this year, it may, by the next year, 
amount to one hundred and fifty dollars, and the year 
after to two hundred dollars, and in twenty years it may 
become five thousand dollars. If it be spent on an enter- 
tainment or a journey of pleasure, it is lost, and all that it 
might have subsequently become, is lost forever. This 
should be borne in mind by every man who wishes to rise 
to independence. Every dollar which is spent in self grat- 
ification, is so much capital placed forever out of his pow- 
ar. And, on the contrary, every dollar which he invests 



420 CONSUMPTION OF CAPITAL. 

in reproductive employment, may at any future time min- 
ister to gratification, or it may provide the means of much 
more vakiable gratification in subsequent life. 

Consumption is either of capital, or of labor. 

I. Consumption of capital. 

The principles which we have already endeavored to 
illustrate VvT-ould suggest the following rules, respecting 
this part of consumption. 

1. Our consumption of capital, in order to produce a 
given result, should be as small as possible. The ordinary 
maxim is as true as it is common, a penny saved is a pen- 
ny earned. In estimating the profits of any operation, it is 
manifest that he who has produced a value worth one 
hundred dollars, at an expense of sixty dollars, reaps a 
profit of twenty dollars more than he who has produced 
the same value, at an expense of eighty dollars. Thus, 
the farmer should economize to the utmost all his mate- 
rials. He who saves half a bushel of seed, in sowing an 
acre, enriches himself as much, as though he had reaped 
half a bushel more per acre. It is said that, in China, 
sowing is always done by drilling. One of Lord Macart- 
ney's suite estimated that the saving, throughout the 
whole empire, from this improvement, is sufficient to feed 
the whole population of Great Britain. The same princi- 
ple applies to mechanics, manufacturers, and all consumers 
whatever. It is, unfortunately, the case that from want 
of care and ingenuity a much larger portion of value is 
commonly consumed, than is necessary for the production, 
required. This is specially the case with fuel. Probably 
not more than one tenth of the heat given off by wood, is 
rendered serviceable by the common fire place. 



CONSUMPTION OF CAPITAL. 421 

2. We should emploij capital, of no greater value than is 
necessary to effect the production intended. Hence, every 
producer should make it an object of inquiry to ascertain, 
so far as the present state of knowledge may enable him, 
in what manner he may effect his purposes, by the least 
costly ma,terials. The merchant, on this principle, should, 
before making an exchange, ascertain what is the cheap- 
est product at home, with which he will be able to pro- 
cure a given amount of a product from abroad. Very 
much of the success of a producer must of course depend 
upon his skill in this respect. The discovery of a cheaper 
dye stuff, of equal goodness, or the exchange of one ex- 
port for another, may frequently, of itself, be sufficient to 
render a man independent. I do not, of course, suppose 
that any man will be so simple as knowingly to expend 
more in production than he supposes necessary. To 
guard him against this foily is not my object. It is rather 
to incite every man to a more thorough and intimate 
knowledge of the principles, on which the operation which 
he conducts, depends. It is only by such knowledge, 
that improvements in the various departments of industry 
are to be effected. And hence we see the importance of 
knowledge, to every man in the community. 

3. It is important that every utility possessed by any 
substance, be entirely consumed. 

In order to secure this result, attention must be paid to 
two circumstances. First. K\\ the fragments and rem- 
nants should be, so far as possible, employed to some val- 
uable purpose. This principle is well illustrated in the 
various uses to which the horns of cattle are applied. 
The horn consists of two parts, an outward horny case, 
and an inward conical shaped substance. The first pro- 
cess consists in separating these two parts by means of a 



422 CONSUMPTION OF CAPITAL. 

blow against a block of wood. The horny exterior is 
then cut into three portions, by means of a frame saw. 

1. The lotvest of them, next the root of the horn, after 
jindergoing several processes by Vv^hich it is rendered flat, 
is made into combs. 

2. The middle of the horn, after being flattened by heat, 
and its transparency improved by oil, is split into thin 
layers, and forms a substitute for glass, in lanterns. 

3. The tip of the horn, is used by the makers of knife 
handles, and of the tops of whips. 

4. The interior or core of the horn, is boiled down in 
water. A large quantity of fat rises to the surface. This 
is sold to the makers of yellow soap. 

5. The liquid itself, is used as a kind of glue, and is 
purchased by the cloth dressers for stiffening. 

6. The bony substance which remains behind, is sent 
to the mill, and, being ground down, is sold to the farmers 
for manure. 

7. The clippings and shavings, are also sold to the far- 
mers, for manure, or are used in small quantities, for the 
manufacture of toys." * 

Now, it is evident, that if any part of this material were 
wasted, the cost of the manufactured articles would be 
higher, and the gain of the producer less. And, we also 
see that he who first discovered the mode of rendering 
an}'' one of these portions of a horn useful, must, by this 
single discovery, have made himself rich. 

e, on Maniifactui'es, 



CONSUMPTION OF LABOR. 423 

And Secondly. All the values must be consumed in the 
most profitable manner. It frequently happens that a 
producer wants hut one value from a substance for his 
particular purpose, while another and an important value 
remains unappropriated. It is always a niatter of impor- 
tance, to employ in the best manner every value which a 
substance is known to possess. Thus, after we have de- 
rived from wood, all the heat which it can evolve, it 
leaves ashes which possess an important value. After the 
oil manufacturer has expressed all the oil from flaxseed, 
the residuum is a valuable food for cattle. The employ- 
ment of this utility, of course lessens the price of oil, and 
increases the demand for it. Hence, we see the supe- 
rior economy of large establishments to small ones. A 
large manufacturing establishment, can ca.rry on several 
distinct operations, for the sake of using these secondary 
utilities. In a small one, this would be impossible, and 
much must in consequence be wasted. Thus, in connex- 
ion with a large slaughter house, I have seen a soap and 
candle manufactory, a manufactory of glue, and one of 
neats foot oil ; while a large number of hogs was fattened 
with the refuse of these several establishments. In this 
manner, every part of the slaughtered animal was profita- 
bly consumed. In small establishments, a large portion of 
the fragments is, by necessity, wasted. 

11. Consumption of labor. 

The principles above illustrated would teach us : — 

1. To evLV^Xoj precisely as much labor as is neeessaiy to 
accomplish the intended result. 

We should never employ more than is wanted. This 
generates idleness and negligence. One supernumerary 
laborer, is not only an useless expense himself, but he 



424 CONSUMPTION OF LABOR. 

generally requires the time of two or three others, to bear 
him company in idleness. 

We should never employ less labor than is wanted. 
This produces confusion, and destroys the advantages of 
correct division of labor. It is no saving to employ one 
person less than is necessary in an establishment, and to 
suspend the labor of others several times in a day, in or- 
der to do the work which that one should have accom- 
plished. 

In general, provided of course the work be well done, 
the less the consumption of labor the better for the pro- 
ducer. Hence the economy of labor saving machinery. 
He who, by an ingenious contrivance, is able to save the 
hire of one laborer, will find himself, at the end of the 
year, richer by precisely this amount saved. 

2. We should employ labor at no higher price, than is 
necessary to accomplish our object. 

Every important operation consists of several subordi- 
nate operations, requiring very different degrees of skill 
in their execution. According to these degrees of skill, 
the wages of labor are adjusted. Now, economy requires, 
that labor of no higher price should be employed on each 
several operation, than the importance of the operation 
requires. He who is able so to arrange his laborers, as to 
entrust, safely, to labor worth fifty cents, what was for- 
merly executed by labor worth one dollar, makes a gain 
of fifty cents a day. Thus, in the power press, the labor 
of press work, which formerly employed two able bodied 
men, is executed, in part by animal force, or by steam 
power ; and the remainder by women. The reduction in 
price, thus effected, is very considerable. 



ECONOMY OF LABOR. 425 

But while this is the fact, it is also the fact, that we 
never gain by employing laborers incapable of accomplish- 
ing the result. If a particular part of an operation re- 
quire skill and labor worth five dollars per day, it is bet- 
ter to give this price, than to confide it to an incompetent 
person, who is willing to work for two dollars per day. 
Thus, a good painter of calico patterns, a good calico en- 
graver, or dyer, is cheaper at five dollars per day, than an 
inferior artist, even if the latter would offer to perform the 
labor for nothing. 

We hence see, again, the importance of an accurate 
knowledge of principles, to every one engaged in exten- 
sive production. It is by deep and thorough reflection 
upon every part of the process which he conducts, that a 
manufacturer is able to keep up with, and specially to add 
to, the improvements of the age, and to prevent himself 
from being undersold by his more enterprising and intel- 
ligent neighbors. 

3. The \sibor paid for, should all be performed. 

Time, as it is frequently said, is money. It is surely 
money to him who pays money for it. And of course 
every hour for whiah he pays, that is spent in idleness or 
uselessness, is so much useless consumption ; or so much 
absolute loss. 

The causes of the waste of labor are various. Some of 
the more common are : — 

1. Want of superintendence. It cannot be supposed 
that laborers, if left alone, and if paid by the day, will la- 
bor as faithfully as if laboring for themselves. Hence the 
necessity and the economy of efficient superintendence. 
He who employs twenty men by the day, to perform a 



426 ECONOMY OF LABOR. 

particular piece of work, will find that an cflicient super- 
intendent will, by preventing idleness, sauntering, and 
story-telling, save much more than his wages. And, 
hence, I suppose that commonly, where the labor is of 
such a nature as to allow of it, it is cheaper to pay by 
the piece, than by the day. In the one case, if a laborer 
be idle, he wastes his oivn time ; in the other case, the time 
of his employer. It is easy to perceive which case is the 
most favorable to industry. 

2. Irregularity. This is a great source of waste of 
labor. Where tools are allowed to get out of place, ma- 
terials to be deficient or unsuitable ; or where several la- 
borers are obliged to stand idle, to wait for the comple- 
tion of an operation which is done out of season, much 
time must, of necessity, be lost. In a shop containing a 
dozen workmen, if each one spend, on an average, half 
an hour a day in looking for misplaced tools, or in waiting 
for materials not at hand, this is a loss of more than half 
the wages of one laborer a day. This, in a year, would 
be sufficient to purchase the clothes of a small family. 

3. Defective tools. In order that the economy of labor 
may be as great as possible, the tools by which labor is 
saved, should be as perfect as possible ; otherwise, we de- 
rive only a partial benefit from the invention. He who 
employs a man to chop wood, would certainly see the im- 
portance of furnishing him with a sharp axe. He who 
erects a fence, to save the labor of guarding his cattle, 
will certainly do wisely to keep his fence in good order. 
It is surely less labor to mend a gap in a fence, than to be 
obliged to plant a field a second time, because the grain 
has been destroyed, by cattle which that gap permitted to 
enter. It takes less labor to mend a leakage in a mill 
dam, than to rebuild the dam after it has been, by means 
of that leakage, carried away. Hence, we see the import- 



ECONOMY OF LABOR. 427 

ance, of keeping every i)art of an establishment in perfect 
order, and of allowing nothing to be out of repair, if it be 
possible to repair it. 

"I remember," says Say, "being once a witness of the 
numberless misfortunes which a neglectful housekeeping 
entails. For the want of a small latch, the gate of the 
poultry yard was forever open, there being no means of 
closing it externally, and many of the poultry were lost 
in consequence. One day, a fine young porker, made his 
escape into the woods, and the whole family, gardener, 
cook, milkmaid, &c., presently turned out in quest of the 
fugitive. The gardener^ in leaping a ditch, got a sprain 
that confined liim to his bed for a fortnight. The cook, 
found the linen burnt tluit site had left at the fire to dry. 
The milkmaid forgot, in her haste, to tic up the cattle in 
the cow house, and one of the loose cows h7-oke the leg of 
a colt that was kept in the same shed. The linen burnt, 
and the gardner's work lost, were worth twenty crowns, 
and the colt as much more, so that forty crowns were, in 
a few minutes lost, for want of a latch that would not 
have cost more than a few sous." [Pol. Economy, Book 
3d, chapter 5.] 

Illustrations of the importance of having every instru- 
ment in order, and in place, are occurring in most estab- 
lishments every day. They teach us, that economy of 
capital, as well as of labor, requires that every thing 
should be done in time, and in season ; that if a thing need 
to be done, to day, we have no means which shall en- 
able us to estimate the loss that may ensue, by putting 
it off until tomorrow; and, that negligence is as much 
at variance with the laws of our Creator, as absolute 
wastefulness, inasmuch as it exposes us to equally severe 
punishments. It would be Vi/ell, if men would remember 
this, not only in the ailaira of this life, but slill more, in 
die aftans of aiiotUer. 



428 ECONOMY OF LABOR. 

Supposing now that both labor and capital, have been 
invested upon the most economical principles. The ob- 
ject for which they have been thus invested, is the crea- 
tion of products. Hence, the greater this product is, the 
more successful the investment, the better is it for the in- 
dividual, and the better is it for the community. The 
object of the farmer is, with a given soil, a given expen- 
diture of labor, of seed and of manure, to raise the greatest 
amount of value in a harvest. This will generally^ 
though not always^ be as the quantity. Fifty bushels of 
common apples, will not sell for so much as forty bushels 
of good ones. One hundred pounds of coarse wool, will 
sell for much less than one hundred pounds of fine wool. 
Hence, his object should be, from a given expenditure, to 
derive the greatest amount of profit. It is, by thus ad- 
justing his expenditure, and thus calculating the results, 
that an intelligent and thoughtful farmer will grow rich ; 
while all around him are remaining stationary or are grow- 
ing poor. 

So, it is the business of the manufacturer to create, 
with a given expenditure, the greatest amount of value. 
If he can succeed in giving to his cloth a better dye, or 
can produce a more durable or a more tasteful fabric, or 
can adapt it better to the satisfying of any human want, 
its value is, by so much, increased, and he and the com- 
munity are the better for the increased value of his pro- 
duction. 

In like manner, the merchant having arranged his ex- 
ports with the greatest economy, should labor to import, 
with this expenditure, the greatest amount of value. He 
should send to the country, and at the time, in which his 
own product will exchange for the greatest amount of 
whatever he wishes to procure. 



ECONOMY OF LABOR. 421) 

It is evident, that, in order to do this, a systematic 
knowledge of the principles of any employment is neces- 
sary to the individual by whom it is carried on. A man, 
in order to be a skilful producer, must be acquainted with 
the laws of production, that is, those laws of nature and 
of society, which govern the transaction in which he is 
engaged. Hence, we see the importance of accurate 
knowledge, and sound mental discipline to all the classes 
of society. 

We see, in the above remarks, another illustration of the 
truth, that the benefit of one is the benefit of all, and the 
injury of one is the injury of all. If a man economize 
labor and capital, he increases his own wealth, and he 
also rescues as much as he saves, from actual destruction. 
The whole of this amount may go to the farther increase 
of production, or to the satisfying of human wants. The 
more he produces, the greater is his wealth; and the 
greater is the value which is created for the good of the 
whole community. Hence, we see, that he who is hon- 
estly promoting his own welfare, is also promoting the 
welfare of the whole society of which he is a member. 

And as it is manifestly for the interest of the individual, 
so is it for the interest of the society, that every producer 
should consume as little value, and produce as great value, 
as possible. Hence, we see the impolicy of those restric- 
tions, which will not allow the individual to purchase and 
to sell where he pleases. If he must give a higher price than 
is necessary for his material, this is, by the difference, un- 
profitable consumption. If he cannot dispose of it where 
he pleases, this is, by so much, unprofitable production, 
because he is unable to realize from his production as 
much he would be able to realize, were he left to himself. 



430 OF PERSONAL EXPENSES. 



SECTION II. 

OF CONSUMPTION FOR THE GRATIFICATION OF DESIRE. 

By means of the productive consumption, above treated 
of, a man procures the means for this second kind of con- 
sumption. This means however, it is always to be re- 
membered does not consist of his whole production, but 
only of the excess of production over consumption. If he 
live on capital loaned at interest, the case is the same. 
The money loaned is, for the time, consumed. The inte- 
rest paid, is the excess of the production over the consump- 
tion, and this, of course, is all that he has to appropriate 
to the gratification of his desires. 

Consumption for the gratification of our desires, may 
be considered from two points of view. First. Without 
reference to the circumstances of the individual, or to the 
relative value of the various modes of gratification ; and, 
secondly with reference to these circumstances. 

I. Of consumption for the jjurposc of self gratification 
sitnply. 

These purposes have been already alluded to. They 
are generally comprehended under the following particu- 
lars : 

Expenditures for the necessaries and conveniences of 
living, as food, clothing and shelter ; for the gratification 
of the senses and the tastes ; for the pleasures of intellect ; 
for the pleasures of society ; and for moral pleasures. 
Under one or other of these simply, or laider several of 



OF PERSONAL EXPENSES. 431 

them combined, I believe almost all of our expenditures 

may be classed. 

Now if these be considered, irrespective of our ch'cum- 
stances, or of the intrinsic value of the gratifications them- 
selves, the principles of expenditure will be, essentially, the 
same as those which have been already illustrated. That 
is to say, if a particular mode of living, or the enjoyment 
of a particular gratification be determined 7ipan, whether 
that determination be wise or unwise, economy teaches us 
to obtain it most perfectly, and at the least possible ex- 
pense. The question of its wisdom or folly, belongs to 
another part of the subject. A particular mode of living 
having been resolved upon, economy will teacb us to sus- 
stain it, at the least possible expense. Hence, in regard 
to capital, the rules will be : 

1. That the consumption of values be as small as is 
consistent with the accomplishment of our purpose. 
This is opposed to several errors. 

To purchasing QJiore of any value than is wanted. The 
articles ordinarily consumed in a family, are rapidly de- 
structible. If more be purchased than is wanted, it is 
liable to become useless, and, in this case, the loss of this 
excess is total. By having a superabundance of any thing 
consumable, it becomes, in the eyes of those who use it, 
less valuable, and is used less carefully. And, if neither 
of these results be experienced, if an article be purchased 
a year before it is wanted, the purchaser loses the inte- 
rest, for a year, of the money expended. Hence, it is 
generally as economical to purchase at retail, as at whole- 
sale. 

Hence it is commonly wasteful to purchase any thing 
because it is cheap. If a man 7ieed any thing, itS' 



432 OF PERSONAL EXPENSES. 

cheapness is a reason why he should buy it. But, if he 
do not want it, its cheapness is no reason at aU. A man 
may buy stones very cheap, but it is doubtful whether he 
would be either enriched or made happier by the purchase. 
Many a garret is filled with great bargains; which were 
purchased because they were cheap, and then laid away 
to rot. 

2. The consumption should he as perfect as possible. 
When we have possessed ourselves of a substance, it 
should not be thrown away, until every utility which it 
possesses has been exhausted. 

Thus, an article of clothing which will not answer any 
longer for one purpose, may answer ver}^ well for another. 
An article of food, which may not be used in one form, 
may be used in some other form. And hence, in general, 
nothing should come into a house, unless it be wanted, 
nor in a larger amount than it is wanted ; and nothing 
should leave it, until all its utility is exhausted. 

3. All the means should be provided for the most per- 
fect production and consumption of values. Hence, every 
useful utensil should be furnished, and should be the 
most perfect of its kind. It is cheaper to buy a coal hod, 
than to carry coal in a basket, and by saving a dollar 
in a utensil, ruin a carpet v.'-orth fifty dollars. It is 
cheaper to have every description of culinary vessel that 
may be needed, than to have food spoiled by being cooked 
in an unsuitable instrument. It is cheaper to have a bad 
fire place altered, at an expense of fifteen dollars, than to 
consume annually ten dollars more worth of wood than 
is necessary. 

Hence, it is also important, that every article purchased, 
be of such' a nature as will admit of the most profitable 



OF PERSONAL EXPENSES. 433 

consumption. If a man buy fuel which gives oif very 
little heat, because it is at a low price, it is by no means 
certain that he has made a successful purchase. It should 
always be remembered, that we want a given amount of 
utility, and not the mere form in which it seems to reside. 
It is cheaper to purchase a dollar's worth of utility for a 
dollar, than half a dollar's worth for seventy-j&ve cents. 
Hence, the lowest priced products, are by no means al- 
ways the cheapest. 

The same principles apply to labor. 

Economy directs, that in a household, we should pur- 
chase as much labor as we need, and of the kind that we 
need, but no more than we need. When we pay for 
useless labor, we throw money away ourselves. When 
we employ incompetent labor, we pay others to throw it 
away for us. , , 

These, I suppose to be the principal circumstances, 
which should govern our expenditures. And, it will be 
seen, that they apply to all the conditions of men. Whe- 
ther our expenditure be large or small, it should be con- 
ducted with economy. The object to be attained is, to 
secure as large an amount of gratification, at as small an 
expenditure as possible. To the man who has but two 
hundred dollars per year to spend, it is certainly important 
to spend it economically. To the man who has ten thou- 
sand dollars per year, it will generally be found convenient. 

Hence it will be seen, that, in order to enjoy the com- 
forts or the luxuries of life, at the least expense, care and 
superintendance, and knowledge of the various operations 
performed in a household, are absolutely necessary. And, 
as this department of consumption, in general, devolves 
upon the mistress of a family, we see how important to 

55 



434 OF DIFFERENT MODES OF CONSUMPTION. 

the execution of it, with success, must be vigilance, care, 
intelHgence and industry. The husband, by the employ- 
ment of capital, labor and skill, in productive consumption, 
secures an annual revenue, for the purpose of consump- 
tion in the various means of gratification, whether neces- 
sary or superfluous. The expenditure of this annual 
revenue, or the making of those arrangements which 
govern the expenditure, generally devolves upon the wife. 
If that expenditure be made without economy, either the 
gratifications which it might procure are never enjoyed, 
and by all the consumption, neither comfort nor pleasure is 
obtained; or else, if the gratification sought for be obtained, 
it is obtained at an expense absolutely ruinous. Hence, 
it will be seen, that the physical comfort, as well as the 
means of happiness of both parties, depends more on the 
domestic education of the female sex than is ordinarily 
supposed. Aff'ection will rarely exist in the atmosphere 
of self inflicted poverty. No man can respect a woman, 
by whose caprice and ignorance of her appropriate duties, 
he is plunged into disgraceful bankruptcy, and wedded to 
hopeless penury. Nor, let it be supposed, that no talent 
is requisite skilfully to superintend a household. It re- 
quires at least as much ability to direct, with skill and on 
principle, the afl'airs of a domestic establishment, as to se- 
lect a ribbon or dance a minuet ; to finger a piano or to 
embroider a fire screen. 

II. Consumption considered in i^espect to the relative 
value of the desire. 

The various objects of desire, by the possession of which 
our happiness may be promoted, may, with sufficient ac- 
curacy for our present purpose, be divided into moral, in- 
tellectual, social, and sensual. 

The attainment of happiness from either of these, com- 



OF DIFFERENT MODES OF CONSUMPTION. 435 

moiily involves some expenditure of time, or of property, 
or of both. Tlius, we cannot by reflection improve our 
own hearts, without the consumption of time, nor culti- 
vate our benevolent sentiments, without the consumption 
of property. The improvement of our minds by reading 
and study, demands both time and books. We cannot 
enjoy the society of our friends, without the consumption 
of both time and of property. And every one knows, 
that the gratification of our senses, whether intellectual or 
corporeal, consumes a large portion of the income of every 
individual. 

It belongs to the teacher of ethics, to show in which 
mode of expenditure a man may best secure his future 
happiness, and act most worthily of the moral nature 
with which he is endowed. The political economist, 
looks upon the various modes of expenditure, simply as 
they aflectthe wealth of the individual, and of the public. 
Yet, even in this view, it may not be inappropriate to offer 
a single suggestion. Inasmuch as we have been created 
with aptitudes for all these different modes of happiness, 
it is manifestly the intention of the Creator, that we should 
enjoy, not merely one, but all of them. As we are not 
merely sensual, but also moral and intellectual beings, it 
is as reasonable that we should expend a part of our time 
and property, in the pursuit of moral and intellectual, as 
that we should spend a part of it, in the pursuit of sensu- 
al gratifications. He who argued from the superior dig- 
nity of our nature over that of brutes, might perhaps urge 
that the former was the more reasonoMe mode of expen- 
diture. But the dignity of the race not belonging to the 
province of the political ecoriomist. we shall not consider 
the subject in this point of view. 

The principles upon which political economy would 
teach us to select our modes of gratification are, I suppose 



436 OF DIFFERENT MODES OF CONSUMPTION. 

the following. First. Where the amount of gratification 
in two cases is equal, it is wise to choose that which is 
the least expensive. The reason for this is too obvious 
to need much illustration. If a particular gratification can 
be procured for one hundred dollars, and another, which 
will afford an equal amount of happiness, can be procured 
for ten dollars, the cheaper is to be preferred ; because, 
while, in this case, we obtain an equal gratification, we 
have ninety dollars remaining with which to purchase 
other objects of desire. Secondly. When two modes of 
gratification are, in themselves, equally productive of hap- 
piness, but, of which, one tends to the wealth, and the 
other to the poverty, both of the individual and of society, 
the former is to be preferred. Thus, if it cost the same 
sum, to spend an evening in intellectual improvement, 
that it would cost to spend it in a drunken frolic, and the 
pleasure in the two cases were the same ; inasmuch as 
intellectual cultivation tends to knowledge, which is a 
valuable consideration to every producer, and a drunken 
frolic has no such tendency, economy would teach us to 
spend the evening in intellectual cultivation. 

If, novv^, we compare the various modes of expenditure 
most common among men, I think that we shall find, 
that the economy of the moral and intellectual pleasures, 
is somewhat overlooked. 

The expenditures for all the real wants and convenien- 
ces of a human being, may, by industry and frugality, 
without great difficulty, be supplied. It does not cost 
much, to provide all that we need for wholesome and pal- 
atable food, for cornfortable clothing and shelter, and for 
all the furniture demanded for convenient domestic ar- 
rangements. Our greatest expenses are for those objects, 
which yield no other utility than the mere gratification of 
the senses, or, which are rendered necessary, by command 



OF DIFFERENT MODES OF CONSUMPTION. 437 

of fashion, or the love of ostentation. Thus, in the pur- 
chase of a garment, or of an article of furniture, a part of 
the price is paid for the real utility which it possesses, 
and the remainder, for that particular form, or color, or 
workmanship, which is designated by fashion. Now, it 
frequently happens, that this latter portion of the price, is 
far greater than the former. The same may be said of 
many of our expenses of the table and of various others. 

Now, that men should not, if they have the ability, in 
any manner gratify their senses, and yield obedience to 
fashion, it is not necessary here to affirm ; nor is it ne- 
cessary that political economy should prescribe the limit, 
within which these gratifications shall be confined. A 
few considerations for the sake of illustrating the compar- 
ative economical advantages of other modes of gratifica- 
tion is all that will be here attempted. 

1. Moral and intellectual pleasures are by no means ex- 
pensive. To spend time in moral cultivation, is no more 
expensive than to spend it thoughtlessly and frivolously. 
The time consumed in thoughtless dissipation, if employed 
in moral culture, would be sufficient to effect great chan- 
ges in our habits and tastes. 

The pleasures of benevolence, so far as pecuniary con- 
sumption is concerned, are less expensive than those of the 
senses. Were the sums lavished in thoughtless caprice, 
in obedience to fashion, or in the gratification of appetite, 
to be reserved for charity, how great an amount of happi- 
ness might be created both in the benefactor and the 
recipient. 

The same may be said of intellectual pleasures. Books 
and all the means for intellectual gratification, may be had 
at an expense within the reach of a very large class of the 
community. The useless ornaments of a drawing room. 



438 OF DIFFERENT MODES OF CONSUMPTION. 

would frequently purchase a considerable library. The 
sums of money annually paid, by most families, to satisfy 
the demands of fashion, would provide them with as 
much reading as they would desire. Now, when these 
two kinds of pleasure are equally set before us, and when 
the one may be procured at so much less expenditure than 
the other, it surely is worth the attention of every man, 
deliberately to inquire by which mode of investment he 
will best secure his own happiness. There seems some- 
thing ill-adjusted, when the habitation of a moral and in- 
tellectual being, reminds us of every thing else, than that 
he is either moral or intellectual. 

2. Moral and intellectual pleasures tend to the wealth 
both of the individual and of society. 

The exercise of benevolence has several important 
economical tendencies. For instance, it tends directly to 
cultivate the habits of self-denial and self-government, 
which are so essential both to industry and to frugality. 
Sensual self-indulgence, tends directly to produce both 
indolence, and capricious and reckless expense. 

Again. The habit of benevolence tends to moderate 
and correct that intense love of gain, which is so frequent- 
ly the cause of ruin to enterprising men. In the man- 
agement of any hazardous business, he will be the most 
likely to succeed, who looks with entire coolness on the 
chances of loss and gain. The too eager, governed by 
their imagination, rush into needless danger. The too 
cautious allow a fair prospect of advantage to pass by un- 
improved. The one is as liable to fail as the other. He 
who, by the practice of benevolence, has learned a more 
accurate estimate of the blessings of wealth, will more 
probably than either, judge correctly. The miser and the 
sensualist will fall into opposite extremes, one upon each 
side of him. 



OF DIFFERENT MODES OF CONSUMPTION. 430" 

Besides, the social benefits of benevolence are incalcu- 
lable. It unites together the various classes of men, by 
the strong ties of affection and gratitude. By bringing 
all classes of men more directly under the view of the 
whole mass of society, social responsibility is increased, 
and the encouragements to virtue and the restraints upon 
vice are strengthened. When the rich are hard-hearted 
and luxurious, the poor are disaffected, anti-social and 
destructive. In so far as benevolence, therefore, tends to 
the improvement of the social dispositions of men, it may 
lay claim to great economical advantages. 

And the same is true of intellectual pleasures. A man 
cannot enjoy these without improving his mind, and ren- 
dering it a more valuable instrument both for the produc- 
tion of his future happiness, and the accumulation of 
wealth. Knowledge is power, in what sphere of life so- 
ever it be exerted. The gratification of the senses ener- 
vates the body, enfeebles the mind, and tends to render 
intellectual exercise unpleasant, and to unfit us for any 
important or highly responsible exertion. 



CHAPTER THIRD. 



OF PUBLIC CONSUMPTION. 



f . SECTION I. 

OF TAXES, OR, THE MANNER IN WHICH PUBLIC EXl>ENDITURE 
IS PROVIDED FOR. 

We have thus far treated of individual consumption, or 
of that destruction of values affected by the individual, in 
the accomplishment of his own purposes ; and for the 
gratification of his own desires. But, all the capital pro- 
duced by a society, is not expended in this manner. A 
part of the annual revenue of every individual, is contri- 
buted in some manner to the public, and is expended by 
the agents of the public, that is, by the government. 
This part remains to be treated of, under the head of 
public consumption. 

This expenditure is provided for, by means of taxation. 
When a given sum is to be raised for the accomplishment 
of any object, it is, by some mode of assessment, distribu- 
ted among the various individuals of the community, and 
every one is obliged to pay the proportion with which he' 
is charged. The sum thus collected, is then for the ac- 
complishment of particular purposes consumed by the 
agents into whose hands it is delivered. The consump- 



OF PUBLIC EXPENDITURE. 441 

tion itself is of precisely the same nature as that effected 
by individuals, that is, the value is destroyed ; and the 
utihty consumed, is annihilated. If an individual burn 
gunpowder, the value in time and material by which it 
was produced is destroyed ; if a hundred, or a thousand 
men do it, the result is the same. If a man in the dig- 
ging of a ditch consume tlie labor of a thousand workmen, 
and use the provision for their sustenance, the whole value, 
thus expended, is annihilated. And, if a thousand men 
unite in the undertaking, the annihilation is the same. 
This is really so evident, that to illustrate it at length, 
seems almost childish. Does any one doubt when a house 
is burnt down, whether the value of a house is or is not 
consumed, because the owner did not set fire to it himself. 
Does any merchant doubt, whether his property is dimin- 
ished or not, when it has been wasted by a profligate clerk. 
In a word, government is nothing but a system of agen- 
cies ; and property consumed by the government, is as re- 
ally consumed, and its value as really destroyed, as though 
the individual citizens consumed it themselves.. 

Now, this being the fact, the rule by which consump- 
tion is to be judged of, is precisely tlie same, whether it 
be public or private. If 'the product created by the con- 
sumption, whether that product be material or immaterial, 
be of greater value than the product consumed, it is profi- 
table consumption ; that is, the public receive in return a 
greater value than they parted with. If a less valuable 
product be created, than is consumed, it is unprofitable 
consumption, and the value might better have remained 
ni the hands of the individuals. If no product whatever 
be realized, it is a total loss ; and the value taken from the 
individual might as well have been thrown into the sea. 
Nay, had they themselves thrown the value consumed in- 
to the Sea, there would have been a gain, in the amount 
of the expense of collecting and consuming it. And still 

56 



442 OF PUBLIC EXPENDITURE. 

more, if the value consumed produce no valuable result, 
but, on the contrary, be employed to promote the purposes 
of oppression and misrule, the evil is enormous. The pos- 
sessions of the individual are taken away, not only with- 
out rendering him any equivalent, but for the sake of em- 
ploying other men to torment him, and deprive him of 
his dearest rights. 

It is very frequently asserted, and therefore some of 
those to whom it is told, I suppose, must believe it, that 
public expenditure enriches a country, or that, at least, it 
is wholly innocent, since it quickens the circulation of 
money, and does no harm, inasmuch as all the money al- 
ways remains in the country. To obviate such an objec- 
tion, let us trace, from first to last, the passage of a product 
towards ultimate consumption, on the public account. 
The government exacts from the tax payer, the payment 
of a given sum in the shape of money. To meet this 
demand, the tax payer exchanges part of the products at 
his disposal, for coin, which he pays to the tax gatherer. A 
second set of government agents is busied, in buying, with 
that coin, clothing and other necessaries for soldiery. Up 
to this point, there is no value either lost or consumed; there 
has only been a gratuitous transfer of value and a subse- 
quent act of barter, but, the value contributed by the 
citizen, still exists in the shape of stores and supplies in 
the military depot. In the end, however, this value is 
consumed, and then the portion of wealth which passes 
from the hands of the tax payer, into those of the tax 
gatherer, is destroyed and annihilated. 

" Yet, it is not the suin of money, that is destroyed ,' 
that has only passed from one hand to another, either with 
or without any return, as, when it passed from the tax 
payer to the tax gatherer ; or in exchange for an equiva- 
lent, as- when it passed from the government agent to the 



OF PUBLIC EXPENDITURE. 443 

contractor, for clothing and supplies. The value of the 
money survives the whole operation, and goes through 
three or four, or a dozen hands, without any sensible al- 
teration. It is the value of the clothing and necessaries 
that disappeai's, with precisely the same effect, as if the 
tax payer had, with the same money, purchased clothing 
and necessaries for his own private consumption."* 

The consumption, then, is of the same nature, whether 
it be public or private. It is a destruction of value, and 
the rule by which we are to determine, whether it be 
profitable or unprofitable is the same, in both cases. It 
is, by inquiring, whether the benefit created by the con- 
sumption, is greater than, equal to, or less than, the value 
of the product consumed. 

While, however, this rule is always to be adopted, it is, 
as in the case of individual consumption, to be interpreted 
with a liberal and intelligent forecast. It must not, of 
course, always be expected, that the product created by 
consumption, will be a visible, tangible, material substance. 
Thus, we see no physical, tangible product, as the result 
of taxes for the support of civil government. But, we 
receive the benefit in security of person, property and rep- 
utation; or in that condition of society, which, though it 
be incapable of being weighed and measured, is absolutely 
essential both to individual happiness, and individual ac- 
cumulation. The same may be said, in substance, con- 
cerning the taxes paid for general education. Here, 
whether the tax payer receive his remuneration in in- 
struction given to his own children, or not, he yet re- 
ceives it, in the improvement of the intellectual and social 
character of his neighbors, by which his property is ren- 
dered more secure, the labor for which he pays is better 
performed, and the demand for whatever he produces, 

^ Say. 



444 OF PUBLIC EXPE>sDITURE. 

is more universal and more constant. The same may be 
said of that pubhc expenditm'e, by which the moral and 
social character of a community is elevated, the taste of 
a nation refined, and an impulse given to eiforts for the 
benefit of man. With this view, no one could oppose the 
expense incurred in bestowing upon public edifices ele- 
gance, or even, in some cases, magnificence of structure ; 
in the public celebration of remarkable eras ; and in the 
rewards bestowed upon those who have by their discove- 
ries enlarged the boundaries of human knowledge, or by 
their inventions, signally improved the useful arts. Politi- 
cal Economy is opposed to none of these forms of expen- 
diture ; all that she requires is, that a valuable consideration 
be received in return for the consumption ; and that the 
consumption be not disproportionate to that consideration. 

Of the different modes by ichich the public expenditure 
is pj^ovided for. 

Taxes are of two kinds, direct and indirect. 

A direct tax, is a certahi amount assessed upon every 
individual, in proportion to the property which he is 
known to possess. In many of the towns of New Eng- 
land, an annual tax list is made out, in which the portion 
which every taxable inhabitant must pay towards sup- 
porting the expenses of the district, is specified. The 
apportionment is made out by persons appointed for the 
purpose, called assessors. If any individual consider him- 
self as taxed too highly, he is at liberty to appear, and 
declare upon oath, the amount of property of which he is 
possessed. His assessment is then graduated, according 
to the amount to which he has sworn. 

An indirect tax, is levied upon articles of production, 
at some period during their passage from one possessor to 



OF PUBLIC EXPENDITURE. 445 

another. Thus, a tax or as it is called a duty, is laid by 
this country on various goods imported from abroad, im- 
mediately on their arrival. This duty, is paid by the mer- 
chant who receives them; and he adds this duty to the 
cost of the goods, when he sells them to the next purcha- 
ser. Thus, the price of the product is raised, by this 
amount, when it comes into the hands of the consumer. 
If broadcloth pay a duty of two dollars a yard, he who 
buys a yard of broadcloth pays two dollars a yard more 
for it than he would pay if there were no duty to be paid. 
If coal be taxed two dollars a ton, as it is at present, every 
consumer of foreign coal pays two dollars a ton more than 
he would pay if no such tax were exacted. The effect of 
this tax is also to keep the price of all other coal two dol- 
lars a ton higher than it would otherwise be. 

Now, supposing the same sum were to be demanded for 
the service of the public, it may be asked, which mode of 
raising it is to be preferred. 

1. In favor of an indirect tax it may be urged, that it 
is raised with more convenience, and less liability to per- 
sonal collision, between the tax payer and the tax gath- 
erer. 

The imports of a country are all received at a compar- 
atively small number of places, denominated ports of en- 
try. Goods arriving at these places are all charged with 
the duty on their arrival : and thus, the collection may 
all be accomplished in a short time, and with very little 
trouble. Besides, as the importer, who pays the duty, 
receives it back again from the purchaser of the goods, it 
seems to him a matter of small importance, whether it be 
high or low, and he is disposed to make but little trouble 
about it. The case is the same with every succeeding 
purchaser, until it comes at last to the consumer. The 



446 OF PUBLIC EXPENDITURE. 

consumer may feel, that the product is dear, but if it be 
no dearer than he has always paid, he thinks but little 
about it ; and, if it be somewhat dearer than formerly, the 
rise and fall in the price of goods is so common a thhig, 
that he imputes the difference to any other cause, as soon 
as to the additional duty paid to the government. Hence, 
it is frequently said, that people do not feel an indirect 
tax, which means, I suppose, that they do not know, either 
how much they pay, or when they pay, or whether they 
pay or not. 

On the contrary, it is, doubtless, the fact, that men feel 
direct taxes more sensibly, that is, they know when they 
pay them, and how much they pay. Here, then, is liabil- 
ity to ill feeling, and sometimes to resistance ; and, more- 
over, there is a possibility that an excessive parsimony 
may restrict the public means in such manner, as to pre- 
vent the execution of works of real utility, if not of 
imperative necessity. 

2. There is, however, a somewhat greater liability of 
injustice, in indirect than in direct taxation. As, Avhen 
duties are laid upon goods, the taxpayer knows very little 
of the amount paid, and is hence less careful to inquire on 
Avhat principles the revenue is raised, there is a greater op- 
portunity afforded, in this manner, of imposing the public 
burdens unequally, and of imposing them for purposes at 
variance with the principles of the social compact. Hence, 
a majority may impose taxes for the benefit of a part, and 
not for the benefit of the whole ; and the matter can easily 
be so mystified, that the sufierer can excite but little 
sympathy. I do not deny that direct taxation is liable, 
in some cases, to the same abuse ; as, for instance, when 
the city and country interests strive to shift the burden of 
taxation upon each other. T only say. that the evil is not 



OF PUBLIC EXPENDITURE. 447 

SO liable to happen in the one case as in the other, and 
when it does happen, it is more readily exposed. 

3. Aside from irregularity in the assessment of indirect 
taxes, it may be observed, that, in their very nature, they 
are liable to objection, because they do not impose the 
public burden, in any manner in proportion to the share 
which the individual receives of public protection. The 
indirect tax, is paid by the consume?'. Hence, he pays, 
not according to the benefit which he receives from the ex- 
istence of civil government, but according to the amount 
of production which he consumes. Hence, he who pos- 
sesses a million dollars worth of property, if he consume 
no more than he who lives by his daily labor, will pay no 
larger share of the public burden. Hence, a manifest 
inequality is involved in the original conception of an in- 
direct tax. To this, I know, it may be answered, that 
the merchant also pays part of the tax, inasmuch as the 
rise of price, in consequence of the duty, diminishes his 
sales, and he is thereby so much the poorer. But to this 
it may be replied : 1. Every man is not a merchant, and, 
hence, the answer is not of universal application, and does 
not remove the difficulty ; and, 2dly, while, in this man- 
ner, the merchant is made poorer, no one is made richer. 
It is true he loses, but from his loss no one gains. The 
public burden is by no means the less, because he sells less 
than he would otherwise sell. Hence the answer merely 
asserts, that both parties suffer equally, though only one 
suffers with any benefit to the public, while the suffering 
of the other is wholly gratuitous. 

The same remark may however be applied in part to 
direct taxation. It may be said, that the tax payer here 
raises his price, in such a manner that he only pays a part 
of the tax assessed upon him, and that the remainder is 
paid by the consumer-. This is, in part, true, but I think 



■448 OF PUBLIC EXPENDITURE. 

not by any means to the extent that it is true of indirect 
taxation. He whose actual property is taxed, cannot 
raise the price of his commodities, with such accuracy as 
the merchant, but must bear his proportion without the 
ability of so readily shifting it upon another. Hence, di- 
rect taxes, if equally imposed, are commonly more just; 
that is, they derive the support of government from the 
individuals, more in proportion to the degree of benefit 
which each desires from the government. 

In favor of direct taxation, it may also be added, that it 
is decidedly more in harmony Avith the genius of a re- 
publican or representative government. Such a govern- 
ment, proceeds upon the principle, that the people are the 
fountain of power, and are competent to govern them- 
selves. Now, such a government ought not, surely, to 
act upon the directly opposite principle, that the people 
ought not to khoiv what they pay, or when or how they 
pay. They are the party, from which, specially, nothing 
of this sort should be concealed. They should know 
what, and hoio much, they contribute ; and, also, in what 
manner, whatever they contribute is expended. It is in 
this knowledge, and in the judicious use of it, that their 
safety consists. To me therefore, the consideration, so 
frequently urged in favor of indirect taxation, that the peo- 
ple do not feel it, is one of the strongest arguments against 
it. The more a people feel taxation, and the more jea- 
lously they watch over the public expenditure, the better 
it is for them and for their rulers. 

Of the principle hy which taxation s/iould be regulated. 

I have already stated that the several members of a so- 
ciety should be taxed in proportion to the benefit which 
they receive from a government. Thus, if a government 
protects for one man, one hundred thousand dollars worth 



PRINCIPLES OF TAXATION. 449 

of property, and for another only one thousand dollars 
worth, the former should pay one hundred times as much 
towards the public expenses, as the latter. So far as 
this is evidently just. But it may be questioned whether 
justice might not go somewhat farther, inasmuch as, a 
percentage of his income, which would not abridge even 
the luxuries of the rich, might materially curtail even the 
necessities of the poor. But whether the rich ought to be 
taxed more than a pro rata proportion or not, I think it 
evident, that taxes should be so arranged, that individuals 
should, in so far as possible, pay in proportion to their 
property ; that is, in proportion to the amount of protec- 
tion which they receive of the government. Now, inas- 
much as indirect taxation, if laid indiscriminately^ would 
apportion the public burden on no such principle, it is 
evident, that such taxation, should be made discriminately ; 
that is, that articles of necessity should be either exempt 
from taxation, or taxed very lightly; and articles of luxury, 
or those used chiefly by the rich, should bear the greater 
part of the burden. 

This would lead us to the following conclusions. 

1. Property below a certain amount, might very pro-- 
perly be exempt from taxation. 

The poor nian^s clothes and bedding, his cow and his 
pig, should never be enumerated among taxable property. 

2. The necessaries of life, if taxed at all, should be 
taxed at the lowest rates. Of these, the rich and poor 
must consume nearly equal quantities. But they require 
only a fraction of the rich man's income, while they de- 
mand almost the whole of the poor man's earnings. A 
tax on bread stuffs, fuel, coarse clothing, or iron, dimin- 

57 



450 PRINCIPLES OF TAXATION. 

ishes, essentially, the comforts, and even the necessaries 
of life, of a very large proportion of every community.* 

3. Taxation should be the heaviest upon articles of 
luxury and ostentatioii ; not for the sake of interfering 
with these modes of pursuing happiness, but because 
those who are able to expend in this manner, are able to 
bear, with the least inconvenience, the expenses of govern- 
ment. The conveniences of living, and the means of 
accurnulation, should bear the next portion of the burden. 
He who is able to furnish himself with the convenietices 
of living, is always able to pay a portion of the expenses 
of government ; and he who possesses means of accumu- 
lation, can always devote some part of that which is an- 
nually accumulated, to pay for the protection which he 
receives. Thus, carpeting, is a more fit subject for taxa- 
tion than bread stuffs or fuel. Thus, also, a farmer's 
wagon, or a merchant's ship, may justly be taxed, but 
they ought not to be taxed in the same proportion as a 

* It is somewhat singular, that, with a surplus revenue on hand of forty- 
millions of dollars, we are, at the present moment, in this country, paying 
a duty of six cents a bushel on imported coal, from five to eight cents 
per pound on candles, four and five cents per pound, on cordage, three 
and a half cents per square yard, on cotton bagging, from ten to thirty 
dollars per ton, on iron, ten cents per bushel on salt, one dollar and fifty 
cents per one hundred and twelve pounds, on steel, andfour cents per pound 
together with forty per cent, ad valorem, on wool. And what is still more 
surprising, while the best land in the world, in the vicinity of navigable 
waters, may here be had for one dollars and twenty-five cents per acre, 
we are importing bread stuffs from every port in Europe, flour is at ten or 
eleven dollars a barrel, and we are paying a duty of nearly twenty five 
cents a bushel on wheat, and fifty cents a hundred pounds on flour. 
These are all, absolutely, necessaries of life, and by far the greater por- 
tion of the consumption of them, must be among the poor. On the con- 
trary, co^ee, tea, dried fruits, and spices are admitted duty free, and wine 
and silks at the very lowest duties. And this is, at a time, when all the 
articles of prime necessity are excessively dear. To render evident either 
the wisdom or the justice of such a policy would require a great many 
words. I fear it could not be done by arguments. 



PRINCIPLES OF TAXATION. 451 

gentleman's coach. 1 have spoken of the expenses of civil 
society, as a public burden. It ought however to be re- 
marked, that this is one of the burdens, which a good 
citizen should be the most willing to sustain ; as it is a 
mode of expense, for which he receives a most abundant 
equivalent. If any one doubt this, let him ask himself, 
what expense would be necessary to secure for him, and 
his property, that protection which he now receives in 
return for the trifling sum which he pays in taxes. The 
sum paid for the necessary expenses of civil government, 
is very trifling, when compared with that which is annu- 
ally expended in journeys of pleasure, in luxuries of the 
table, in ornaments of dress, nay, in profligate amusements 
and vicious indulgences. Every good citizen, while he 
is Under obligation vigilantly to watch over the manner 
in which public money is appropriated, is bound to contri- 
bute, cheerfully and liberally, for every purpose required 
by the public good. 

It will scarcely be necessary to add, after what has been 
said, that a surplus revenue is a public nuisance. It gives 
to the government a control over the monetary afli"airs of 
the country, at the best dangerous ; and a control which 
is very liable to be exerted for the promotion of party 
purposes. It hence gives an additional, an unnecessary, 
and a dangerous power to a majority, and gives them the 
means of perpetuating that power, indefinitely. It is taking 
productive capital from the hands of the owners, and vest- 
ing it in hands where there is every temptation to spend 
it uselessly, if not viciously. The world has never yet 
seen a government so pure, that it would not become cor- 
rupt, if a surplus revenue were permanently placed at its 
disposal. 



452 EXPENSES OF CIVIL GOVERNMENT. 



SECTION II. 

OF THE PURPOSES FOR WHICH THE PUBLIC REVENUE IS 
COMMONLY EXPENDED. 

Of these, the most important are ; the support of civil 
government, education, national improvements, the sup- 
port of the institutions of religion, war, and pauperism. 
Of these, we shall now proceed to treat in their order. 
The principles which we have already illustrated, will, 
however, render it unnecessary to consider them at great 
length. A few remarks upon each, will be all that we 
shall here attempt. 

I. Of expenses for the support of civil government. 

This is by far the most necessary of any of the objects 
of public expense. Without government, there could be 
no society ; and without society, there could be neither 
redress of wrong, nor security of property. But, govern- 
ment cannot be administered without oiRcers, and no one 
will devote himself to the discharge of the duties of civil 
office, unless he be paid for it. 

The principles which should govern this branch of ex- 
penditure, are therefore few and simple. 

1. Economy requires, that precisely such talent should 
be employed, in the various offices of civil government, 
as may be necessary to insure the discharge of the duties 
of each office, in the best possible manner. Many of 
these offices, can only be discharged, successfully, by the 
first order of human talent, cultivated by learning ^tid 
discipline, and directed by incorruptible integrity. Now 



EXPENSES OF CIVIL GOVERNMENT. 4^3 

it is certainly bad economy, to employ inferior talent to 
do badly, that which can only be of any service when it 
is done well. 

2. Hence, the salaries of judicial, legislative, and exec- 
utive officers should be such as will command the services 
of such talent as the duties of each office require. It is 
most unwise parsimony, to give to a judge such a salary, 
as will command the services of nothing more than a third 
rate lawyer ; and, it is mean, to ask an individual to do a 
service for the community, at a lower rate than that at 
which he would do it for an individual. 

In answer to this, it may be said, that by bestowing 
large salaries upon the offices of government, we present 
temptations to avarice. But, 1 reply, the reduction of 
salaries, by no means diminishes the evil. Were emolu- 
ment to be reduced, there would always be a contest 
for office. The only question then is, whether we shall 
have the contest between men of high, or between men 
of loio character, between those who are capable of serving 
lis to our advantage, or those who are only capable of 
serving us to our disadvantage. Were the most import- 
ant trusts in the government to command no higher 
salaries than the wages of day laborers, there would be as 
great competition for them as at present, only, then, the 
contest would be between day laborers, instead of being 
between men of professional ability. 

Here, however, I am willing to allow, that the princi- 
ples of wages formerly illustrated, should have their full 
effect. For instance, where an office confers rank, or 
dignity, or indicates professional eminence, the emolument 
should be less, than would otherwise be paid for the same 
amount of service. Again, when an office is permanent, 
the emolument should be less, than when it is temporary. 



454 EXPENSES FOR EDUCATION. 

But, on the other hand, if it be insisted upon, that neither 
rank nor consideration shall be allowed to the public offi- 
cer, but that all men are, and must show themselves to be, 
on a level ; the remuneration of office should be higher. 
And also, when an office is temporary, and the having 
held it, disenables the incumbent from subsequent pro- 
fessional employment, the remuneration should rise accor- 
dingly. In such cases, a pension should be attached to 
the office, if its duties, for a given time, have been faith- 
fully discharged. 

IL Of expenses for the purpose of education. 

1. Education is of two kinds, common and scientific. 
Common education, is limited to the teaching of those 
branches, of which a knowledge is necessary in the pursuit 
of the ordinary occupations of life. This is a proper ob- 
ject for national expenditure, because it is for the interest 
of every man, that every other man should be acquainted 
with the elements of learning. Specially is this the case 
in a representative government. 

A question however occurs, both as to the manner in 
which such a revenue should be raised, and the manner 
in which it should be distributed. It may, for instance, be 
raised like any other tax, and paid into the public chest, 
and the teachers be paid as officers of the government. 
Or, it may be raised in the different districts, in which 
the schools are to be supported, and paid into the hands 
of district officers, who both oversee the schools and em- 
ploy the teachers. The latter seems to be by far the pre- 
ferable method. In this manner, there will be by far the 
most lively interest maintained in behalf of schools, the 
appropriation of money will be more vigilantly guarded, 
and the teachers will more probably be appointed on 
account of their skill and ability. Tlie appointment of so 



EXPENSES FOR EDUCATION. 455 

many teachers, could rarely be eifected by a central gov- 
ernment, with either skill or fidelit^^. And, the commu- 
nity, having no interest, either in the selection or the 
remuneration of the teacher, Vv^ould rarely take that inter- 
est in the subject of education, which the good of the 
pupils requires. 

On this subject, the principles to be kept in view seem 
to be simple. It seems necessary, that every district suf- 
ficiently large to maintain a school, should be obliged to 
maintain one, and that, for this purpose, the necessary 
funds be raised by the authority of the public. When, 
however, these funds have been raised, they may safely 
be left in the power of each district itself, in the belief 
that those who have, themselves, earned and contributed 
the money, will be more likely than any other persons, to 
disburse it skilfully and economically. Besides this, as 
upon such a system, teachers will be wanted in large 
numbers, it may be desirable that seminaries be estab- 
lished for the special purpose of educating them. This 
will give uniformity to the system of instruction, and 
enable the science of education, throughout a whole com- 
munity, the more easily to keep pace with the progress of. 
science, in other departments of knowledge. 

2. Of scientific education. 

That the cultivation and the diffusion of science is- 
greatly advantageous to a whole community, does not, I 
trust, require proof. Nations are, at present, principally, 
enriched by the result of discovery and invention ; and 
in consequence of the general difiusion of knowledge and 
intelligence. That a portion of the national revenue 
should be directed to the promotion of these objects, seems- 
both equitable and wise. 



456 , EXPENSES FOR EDUCATION. 

As both the cultivation and the diffusion of science may 
be performed by the same individuals, and, as the same 
instruments are needful for both purposes, these two ob- 
jects have been commonly united. The design of an 
establishment for scientific education is two fold. 1st. 
To diffuse abroad the knowledge already existing, and 
2dly, to add to the amount of knowledge that now actually 
exists. Seminaries of learning have rarely been success- 
ful in accomplishing either one of these objects, when 
they were not also successful in accomplishing the other. 

The only question to be considered here is this. In 
what manner, and how, at the least expense, may a govern- 
ment promote the cultivation and diffusion of science, by 
means of seminaries of higher education. 

1. I have remarked when treating of production, that 
the instruments, the books, and the buildings necessary 
for the accomplishment of these objects, are very expen- 
sive, and can rarely be possessed by individuals. Or, if 
they were possessed by individuals, the cost of the invest- 
ment would render education so expensive, as to restrict 
it entirely to the rich. Hence, we see that public provis- 
ion for scientific education, instead of benefitting the 
wealthy, is, specially, a benefit to the poor. The fur- 
nishing of these means, is the most important duty of a 
government, in so far as scientific education is concerned. 

2. Whether teachers should pay for the use of such 
means, may be easily decided. If they pay for such use, 
they must charge a proportionally higher price for tuition. 
If they have the use for nothing, their charges for tuition 
will fall in proportion. 

3. The emolument of the teacher should be made to 
depend upon his professional skill and ability. In no other 



EXPENSES FOR EDUCATION. 457 

manner, will the necessary stimulants be presented to 
professional industry ; and, in no other way, will it be 
rendered impossible for a man to support himself in this 
profession, without performing its duties with skill and 
and fidelity. I have no doubt that the mode, in this 
country, of remunerating all college officers by a fixed 
salary, is exceedingly unfavorable to the progress of 
education. If, for the sake of promoting the study of a 
particular science, funds be provided for the partial sup- 
port of an instructor, they should always be so managed, 
as not in any manner to conflict with the principle here 
advanced. 

4. If, in addition to this, funds be provided for the ed- 
ucation of a certain number of those who are indigent, I 
think that this should be done upon the following prin- 
ciples: — 

1. The provision should be so made, as to benefit merely 
the mdigent, and not to reduce the price of tuition, to the 
whole. If tuition be so expensive that A cannot procure 
it, and it be desirable to educate him^ it may be well to 
make provision for him. But, this is no reason why the 
price of tuition should be reduced, in an equal degree, for 
B, C, D, and the rest of the community, who are able to 
pay for it at its natural cost. 

2. The provision should be so made as not to interfere 
with the principle above advanced, that teachers be re- 
warded according to their skill and fidelity. If it be so 
made that a college, on account of its cheapness, will al- 
ways be full, and its officers be paid, whether they per- 
form their duties or not, it will retard, instead of promoting, 
the cause of education. 

5S 



458 EXPENSES FOR EDUCATION. 

3. It might be of advantage, supposing a series of 
schools were established, if gratuitous admission to the 
higher seminaries were the reward of talent, diligence and 
good conduct in the lower. This would be a strong stim- 
ulant to effort in the lower schools, and would be more 
likely than any other mode, to limit the bounty of the 
public, to those who are the most deserving of it. 

It may not be amiss here to add, that the success of 
public efforts for the purpose of promoting scientific edu- 
cation, will depend very greatly upon the mode in which 
those efforts are exerted. If they be directed to the single 
object of reducing the cost of education, nothing but this 
object will be effected. Pupils will pay the smallest pos- 
sible sum for tuition, and the instructors will receive the 
smallest possible remuneration for their services, and their 
services will be of the smallest possible value. A man 
would be considered very simple, who flattered himself 
that he could purchase twenty-five dollars worth of broad- 
cloth, or flour, or coffee, for five dollars. Let him please 
himself with his own fancies as he may, it will be found, 
in the end, that for five dollars he has received no more 
than five dollars worth. The case is the same with edu- 
cation. Men may have teachers worth five hundred or 
one thousand, or two thousand, or three thousand dollars 
per annum. But they will greatly mistake, if they sup- 
pose, that, by any process yet discovered, services worth 
three thousand dollars can be procured for five hundred 
dollars. 

By merely reducing the cost, education will decrease in 
quality as it increases in quantity. As the article is found 
to be less valuable, it will, in the end, be less in demand ; 
and thus, at last, not merely will the quality have deteri- 
orated, but the quantity produced will also have dimin- 
ished. 



RELIGIOUS ESTABLISHMENTS. 459 

On the other hand, if the efforts of the pubhc be directed 
to improvement of education, the increased vaUie of an ed- 
ucation will induce a greater number to avail themselves 
of its advantages. The literary taste of the community 
will be elevated ; the demand for education will increase, 
and thus, not oyiIj will the quality of the product be im- 
proved, but the amount disposed of will be greatly aug- 
mented. If these vieAvs be correct, it will follow, that 
the efforts in behalf of collegiate education in this country, 
have not always been wisely directed, and, that, if much 
that has been done to render education cheap, had been 
done to render education good, it would have been far 
better for the cause of science, and of professional learning 
among us. 

III. Of expenses for maintaining religious worship. 

These expenses need to be borne by men in some man- 
ner associated together. It, however, by no means fol- 
lows, that they are to be borne by men as members of 
civil society. It cannot be proved that the Christian re- 
ligion needs the support of civil government, since it has 
existed and flourished when entirely deprived of this sup- 
port. And, if it be said, that every man derives benefit 
from religions services, inasmuch as these services improve 
the moral and intellectual character of his neighbors ; and 
hence that every man ought to pay for their maintenance ; 
the argument maybe easily met as follows. It is granted, 
that every man is benefitted by the regular administration 
of the ordinances of religion, but this is not the reason for 
which these ordinances are established. Men unite with 
their neighbors to procure religious instruction, for their own 
benefit, and not for the benefit of others. If it happen, 
accidentally, that others are benefitted, it does not follow 
that they are obliged to pay for this benefit. If my 



460 NATIONAL IMPROVEMENT. 

neighbor erect a building for his own profit, on his own 
land, and thus improve my property, I am not obliged 
to unite in defraying the expenses of his building. 1 am 
entitled gratuitously to this accidental advantage. I think 
the same principle applies to the case in question. 

The only ground on which the support of religion by 
public taxation can be defended, is, that its existence is 
necessary to the support of civil government, and that it 
can be sustained in no other manner than by compulsion. 
The first assertion we grant to be true. The second, we 
utterly deny. Hence we do not believe that any taxa- 
tion for this purpose is necessary. All that religious so- 
cieties have a right to ask of the civil government, is, the 
same privileges for transacting their own affairs, which 
societies of every other sort possess. This, they have a 
right to demand, not because they are religious societies, 
but, because the exercise of religion is an innocent mode 
of pursuing happiness. If these be not granted, religious 
men are oppressed, and the country where such oppression 
prevails, let it call itself what it may, is not free. 

IV. Of nationalimpj'ovement. 

Another purpose, for which the public funds are fre- 
quently expended, is national improvement. The prin- 
ciples which seem to apply to this case, have been al- 
ready stated. They are briefly these. Improvements 
of coasts, and habors, and all that is necessary for the 
security of external commerce, must be done by the pub- 
lic. Internal improvements, such as roads, canals, rail- 
roads, &c., may, in general, be safely left to individual 
ergterprise. If they would be a profitable investment of 
money, individuals will be willing to undertake them. If 
they would be an unprofitable investment, both parti'^s 



EXPENSES OF PAUPERISM. 4G1 

had better let them alone. The only case in which a 
government should assume such works, is that in which 
their magnitude is too great for individual enterprise, or 
that in which the power which they confer, is too great 
to be entrusted to private corporations. Whenever they 
are undertaken, the principles on which the expenditure 
should be made, are the same as those which govern the 
expenditure of individuals. 

V". Of the expenses of pauperism. 

To relieve the sick, the destitute and the helpless, is a 
religious duty, and therefore should, like every other re- 
ligious duty, be a voluntary service. Hence, charity in 
a moral and religious community should generally be dis- 
pensed by individuals from their own resources, or from 
the resources of voluntary associations. 

Nevertheless, as cases frequently occur which could not, 
with sufficient promptness, be relieved by the aid of in- 
dividuals, or in which the burden would press too heavily 
on the most charitable, it may be proper that some public 
provision should be made for the relief of those whom old 
age, or infancy, or sickness, has deprived of the power of 
providing the means necessary for sustenance. 

By far the greater number of persons requiring such aid, 
are however capable of some labor, and are also possessed 
of some skill. They are also far happier, when engaged 
in suitable labor than when idle. It is therefore the dic- 
tate of benevolence, as well as of economy, to provide 
them with means of profitable occupation. This labor 
and skill, if judiciously employed upon capital, will com- 
monly defray the expenses of the support of paupers. 
Hence, the best method of relieving the poor, is to provide 
some establishment furnished with sufficient capital, in 



462 MILITARY ESTABLISHMENTS. 

which, all the poor who need assistance, may be employed 
and supported. In many cases in New England and New 
York, farms have been purchased by towns or by coun- 
ties, for this purpose. It has generally been found, that 
the only expense necessary to be incurred is the purchase 
of the farm, or the first investment of the capital. The 
establishment, after this, under judicious management, 
has generally paid its own expenses, and, in some cases, 
as I have been informed, has even yielded a revenue to 
the public. The expenses of pauperism, if they be de- 
frayed in this manner, must of necessity be very moderate ; 
while a competent and convenient provision may be made, 
for every individual who actually deserves assistance. 

VI. Of War. 

The cheapest defence of nations, I suppose to be the 
exercise of justice and benevolence. If however a nation 
resolve to rely upon its military prowess, and to encounter 
the dangers to its liberty, which necessarily arise from the 
existence and employment of military force, economy 
would direct that both its plans and means of defence 
should be extensive, scientific and complete. Its territory 
and its coasts should be accurately surveyed with refer- 
ence to this object. Its assailable positions should all 
be strongly fortified. Munitions of war should be provi- 
ded in abundance. Schools for instruction in the art of 
war, should be supported at the public expense, and the 
persons so educated should be maintained, either in whole 
or in part, at the public expense, so that their services 
may be commanded, whenever they may be required. In 
this, as in every other case, economy teaches us, that if a 
given object is to be effected, no expense is unreasonable, 
which is necessary to efiect it in the most perfect manner. 
The manner of expenditure is to be learned from the 



MILITARY ESTABLISHMENTS. 4G3 

teachers of military science. Economy therefore directs 
that the most vakiable talent should be employed, at 
whatever expense, for providing the plans of defence, that 
these plans should be fully and perfectly carried into ef- 
fect, and that all should be done at no greater cost than 
is necessary to the accomplishment of the object. 



NOTE. 

[The subject of the Currency occupies, at present, so 
prominent a place in the pubhc attention, that I have 
added, in the form of a note, the article on the Precious 
Metals entire, from Mr. McCulIoch's Dictionary of Com- 
merce.] 

To enter fully into this interesting and difHcuIt subject would require 
a long essay, or rather a large volame. Mr. Jacob has recently published 
an " Historical Inquiry into the Introduction and Consumption of the 
Precious Metals," in which he takes up the subject at the earliest period, 
and continues it to the present day. This work, though neither so com- 
plete nor satisfactory as might have been expected, contains a good deal 
of valuable information, and deserves the attention of all who take an 
interest in such inquiries. We confess, however, that several of the 
learned author's statem^ents and conclusions seem to us to be not a little 
wide of the mark. We shall notice one or two of them in the course of 
this article. 

1. Supply of Precious Metals. — Since the discovery of America, the 
far greater part of the supplies of gold and silver have been derived from 
that continent. Previously to the publication of Humboldt's great work, 
Essai Politique sur la Moiivelle Espagne, several estimates, some of them 
framed by individuals of great intelligence, were in circulation, of the 
quantities of gold and silver imported from America. They, however, 
differed widely from each other, and were all framed from comparatively 
limited sources of imformation. But these have been wholly superseded 
by the more extensive and laborious investigations of M. Humboldt. 
This illustrious traveller, besides being acquainted with all that had been 
written on the subject, and having ready access to official sources of in- 
formation unknown to the writers already alluded to, was well versed in 
the theory and practice of mining, and critically examined several of the 
most celebrated mines. He was, therefore, incomparably better qualified 
for forming correct conclusions as to the past and the present productive- 
ness of the mines, than any of those who had hitherto speculated on the 
subject. His statements have, indeed, been accused of exaggeration ; 
and we incline to think that there are grounds for believing that this 
charge is, in some measure, well founded, particularly as respects the 
accounts of the profits made by mining, and of the extent to which the 

59 



466 McCULLOCH ON THE PRECIOUS METALS. 

supplies of the precious metals may be increased. But this criticism 
appliesjif at all, in a very inferior degree, to the accounts M. Humboldt 
has given of the total produce of the mines, and the exports to Europe. 
And, making every allowance for the imperfection inseparable from such 
investigations, it is still true that the statements in question, and the in- 
quiries on which they are founded, are among the most valuable contri- 
butions that have ever been made to statistical science. 

According to M. Humboldt, the supplies of the precious metals derived 
from America have been as follows : — 

Dollars a Year Dollars a Year 

at an Average. at an Averaj^e 

From 1492 to 1500 - - 250.000 From 1600 to 1700 - 16,000,000 

— 1500 — 1545 - 3.000,000 — 1700 — 1750 - 22,500,000 

— 1545 — 1600 - 11,000,000 — 1750 — 1803 - 35,300,000 

(Essai sitr la JVouvelle Espange, tome iii. p. 428. 2d ed.) 
The following is M. Humboldt's estimate of the annual produce of the 
mines of the New World, at the beginning of the present century ; 
Political Divisions. 
Vice-royalty of New Spain, $23,000,000 

Vice-royalty of Peru, 6.240,000 

Captain-generalship of Chili, 2,060,000 

Vice-royalty of Buenos Ayres, 4.850,000 

Vice-royalty of New Granada, 2^990,000 

Brazil, 4,360^000 



Total, $43,500,000 

Taking the dollar at 4^. 3d., this would give 9,243,750Z. as the total an- 
nual produce of the American mines. M. Humboldt further estimated 
the annual produce of the European mines of Hungary, Saxony, &c.,and 
those of Northern Asia, at the same period, at about 1,000,000L more. 

The quantity of gold produced in America at the beginning of the cen- 
tury, was to the quantity of silver as 1 to 46; in Europe, the proportions 
were as 1 to 40. The value of equal quantities of gold and silver were 
then in proportion of 15 or 15^ to 1. Latterly, the quantity of gold pro- 
duced has increased, as compared with the quantity of silver. 

From 1800 to 1810, the produce of the American mines was considera- 
bly increased ; but in the last-mentioned year the contest began, which 
terminated in the dissolution of the connection between Spain and the 
South American colonies. The convulsions and insecurity arising out of 
this struggle ; the proscription of the old Spanish families, to whom the 
mines principally belonged, who repaired, with the wrecks of their for- 
tunes, some to Cuba, some to Spain,andsome to Bordeaux and the south 
of France ; have caused the abandonment of several of the mines, and an 
extraordinary falling off in the amount of their produce. There are no 
means of accurately estimating the precise extent of this decline ; but 
according to Mr. Jacob, who collected and compared all the existing in- 
formation on the subject, the total average produce of the American 
mines, inclusive of Brazil, during 20 years ending with 1829, may be es- 
timated at 4,036,838Z. a year; being less considerably than ^ of their pro- 
duce at the beginning of the century ! — (Jacob, vol. ii. p. 267.) 



Mcculloch on the precious imetals. 407 

Since the publication of Mr. Jacob's work, some further lio'ht luis been 
thrown on this subject, by the publication of returns obtained by the 
British consuls in South America, of the produce of the mines at differ- 
ent periods. They differ considerably from tliose given by Mr. .lacob. 
The following- is an abstract of their results, comparing the 20 years end- 
ing with 1809 with the 20 years ending with 1829 :— 

Mines. 1790 to 1809 1810 to 1829 

Mexico, £98,952,681 £47,301,804 

Panama, 223,518 23,(303 

Chili. 1,808,710 2,782'.702 

Buenos Ayres, 21,149,78G 10.057,782 



Total of America. £122.134.605 £60,165,891 

Russia, ' ' 5,200,724 



65,372,615 
There are so many sources of error attached to all investigations of this 
sort, that these results, though deduced from what may be reckoned good 
authority, cannot be altogether depended on. The consular returns con- 
tain no account of the produce of the Peruvian mines, except in so far as 
they come under the head of Buenos Ayres ; and in this respect they dif- 
fer very widely from the statements given by Mr. Jacob, who estimates 
the produce of the mines of Peru and Buenos Ayres, during the 20 years 
ending 1829, at about lS,o00,000L ! We also incline to think that the 
mines and washings in Colombia are not quite so neglected as they are 
said to be by the consul. It will be observed, too, that the account does 
not include the prodvice of the Brazilian mines. They are supposed to 
have yielded, since 1810, about 1,500,000 dollars a year ; but is this not 
more than adequate for the wants of the country. The produce of the 
Russian mines was comparatively trifling till 1810 ; but it has since in- 
creased, and is continuing to increase with considerable rapidity. 

Adding to the produce of the American, that of the Russian mines, and 
separating the gold from the silver, their total produce, according to the 
<;onsular returns, during each of the 4 decennial periods, ending with 
1829, has been about — 

Gold. Silver. Both. 

Ten years ending 1799 £3,295,000 £59,290,000 £62,585,000 

1809 4,180,000 55,367,000 59,547,000 

1819 3,955,000 29.953,000 33.908,000 

1829 5,752,000 25'712,000 31/164,000 

This gives 3,146,000^ lor the average annual supply of the American 

and Russian mines during the 10 years ending with 1829. But the re- 
'turns show that the produce of the Mexican mines had begun materially 
to increase in the latter years of this period ; and we have to add to the 
above the produce of the Hungarian and Saxon mines. Hence, allowing 
for the increase that has taken place since 1829 in productiveness of the 
Me.xican and South American mines, exclusive of Brazil, and adding to 
their produce that of the Russian and other European mines, we may 
safely estimate (assuming the consuls not to have under-i-ated the Amer- 



468 



McCULLOCH ON THE PRECIOUS METALS. 



ican returns) the present annual supply of gold and silver from these 
sources at considerably more than 4,000,00CL 

Exclusive of the sources now mentioned, the United States have re- 
cently begun to afford considerable quantities of gold. It was first dis- 
covered in North Carolina, in 1804 ; and from that period till 1629, about 
109,000 dollars had been found. It has since been discovered in other 
States. The following Table exhibits the value of the gold annually pro- 
duced in the United States since 1829. — (American Almanac for 1834.) 



States. 


1829. 


1830. 


1831 


1832. 


Virginia, 


$2,500 


.$24,000 


$26,000 


$34,000 


North Carolina, 


134,000 


204,000 


2.94,000 


458,000 


South Carolina, 


3,500 


26.000 


22,000 


45.000 


Georgia, 


- - 


812,000 


176.000 


140,000 


Alabama, 


- - 


- - 


1,000 


. . 


Tennessee, 


- - 


- - 


1,000 


1,000 



Total, 140,000 466,000 520,000 678,000 

This Table shows a considerable increase ; the produce in 1832 being 
above 135,000Z. It is principally obtained by washing the soil in the 
valleys. Taking this new supply into account, and including, as was 
Gone by M. Humboldt, the produce of the Brazilian mines; and further 
adding 500,000Z. to the sums given in the consular returns, to cover the 
deficiencies which they certainly involve ;* we may safely estimate the 
entire annual produce of the American, European, and Russo-Asiatic 
mines, as amounting, at this moment, to about 6,000,000L a year; being 
6-lOths of their annual produce when greatest. 

2. Consumption of Precious Metals. — Gold and silver are supplied either 
to serve as coin, or made use of in the arts. There are no means whatever 
by which to discover the proportion in which they are applied, at any 
given period, to these purposes ; and the proportion is perpetually vary- 
ing with the varying circumstances of each country; as, for example, with 
the greater or less abundance of paper money, and the degree in which 
the use of coins is saved by the various devices resorted to by means of 
banking and otherwise for economising currency, the greater or less 
wealth of the inhabitants, the fashion as to plate, the feeling of security 
at the moment, and a thousand other circumstances, — all of which are 
liable to great and sometimes sudden changes. 

According to Mr. Jacob, the value of the precious metals annually ap- 
plied to ornamental and luxurious purposes in Europe, may be estimated 
as follows: viz. Great Britain, 2,457,221/. : France, 1,200,000/. ; Switzer- 
land, 350,000/.; remainder of Europe, 1,605.499/.; making in all, 
5,612,711/. And adding to this the sums directly applied to the same 
purposes in America, the whole will be about 5,900,000/. 

The data upon which this estimate has been founded, are in the last 
degree vague and unsatisfactory. It can hardly, indeed, be looked upon 
as any thing better than a mere guess ; and as such, we do not think 



* Even with this addition, their produce is materially under the sum mentioned by 
Mf. Jacob. 



Mcculloch on the precious metals. 4ti9 

that it is a very happy one. M. Chabrol (whose researches are far more 
worthy of confidence than those of M. Chaptal, to which Mr. Jacob re- 
fers) estimates the consumption of gold and silver in the arts at Paris at 
14,552,000 francs a year — (Recherches Statistiques sur la Ville de Paris, 
1823, Tab. No. 85.) ; which corresponds with the elaborate estimate of 
M. Benoiston de Chateauneuf — Recherches sur Ics Consommations de 
Paris en 1817, 2de partie, p. 78.). Both these authorities agree that the 
consumption of the precious metals in the arts at Paris is double that of 
the rest of France ; so that we have 21,828,000 francs, or 866,190^. for the 
consumption of the whole kingdom, which is 333,81 OZ. a year under Mr. 
Jacob's estimate. 

We have been assured, by those who have good means of forming a 
correct opinion upon such a point, that the quantity assigned by Mr. 
Jacob for the consumption of Great Britain is over-rated in about the 
same proportion as the consumption of France, or about ^ part. There 
has, no doubt, been a considerable increase of late years in the consump- 
tion of plate and gilt articles ; but it would require far better evidence 
than any hitherto laid before the public, to warrant the conclusion that 
so large a sum as 2,457 ,000L is appropriated to such purposes. 

The consumption of Switzerland, as set down by Mr. Jacob, is probably 
not far from accurate. But the sum assigned for the aggregate consump- 
tion of the rest of Europe seems to be quite as much exaggerated as that 
allowed for France and England. 

According to this view of the matter, the consumption will be, — Great 
Britain, 1,842,916L; France, 866,190L ; Switzerland, 350,000Z. ; rest of 
Europe, 1,204,118L in all, 4,2G3,224L To this must be added 300,000L 
for the consumption of America making the entire consumption 4,563,224/. 

Probably this valuation is still too high. According to M. Humboldt 
(JYouvelle Espagne, 2d edit, tome iii. p. 464), the total consumption of 
the precious metals in Europe, for other purposes than those of coin, 
amounts to only 87,182,800 francs equal, at the exchange of 25-20, to 
3,459, 714Z. : and adding to this 300,000Z. for the consumption of America, 
the grand total will be, in round numbers, 3,760,000/. ; being 803,000/. 
under our estimate, and no less than 2,140,000/. under that of Mr. Jacob ! 

But a portion of the gold and silver annually made use of in the arts 
is derived from the fusion of old plate, the burning of lace, picture frames, 
&c. Here, however, we have to lament the impossibility of ascertain- 
ing the proportion the supply from this source bears to the total quantity 
wrought up. Mr. Jacob estimates it at only l-40th part, or 2^- per cent.; 
but so small a sum seems to be quite out of the question. Most part of 
the precious metals employed in plating, gilding, &c.. is certainly de- 
stroyed ; but the quantity of metal so made use of is admitted by every 
one to be decidedly less than the quantity used in the manufacture of 
plate, watch-cases, and other articles of that description. And these, 
when they either become unfashionable, or are broken or injured, are, 
for the most part, sent to the melting pot. According to the statement 
of Necker, quoted and sanctioned by Humboldt, a half of the gold and 



470 Mcculloch on the precious metals. 

■silver used in France by goldsmiths and others in the arts, is supposed 
to be obtained from the fusion of old plate, &c. — (Kouvelle Esjjange, 
tome iii. p. 467.) 

But, notwithstanding the high authority by which this estimate is 
supported, we believe that it is nearly as much above the mark as Mr. 
Jacob's is certainly below it. Assuming, therefore, that, at a medium, 
20 per cent, or l-5th part of the precious metals annually made use of 
the arts is obtained from the fusion of old plate, we shall have, by de- 
ducting this proportion from the 4,563,000Z. applied to the arts in Europe 
and America, 3,650, OOOL as the total annual appropriation of the new 
gold and silver dug from the mines to such purposes, leaving about 
2,000,000L a year to be manufactured into coin. 

It is not much more easy to determine the consumption of the precious 
metals when manufactured into coin, than when in plate. Mr. Jacob has 
entered into some curious details (vol. ii. c. 28.) to determine the abra- 
sion or loss of coins from wear, which he estimates at l-600th part a 
year for gold, and, and l-200th part for silver coins. This, however, 
does not give the total wear and tear of the coins. To determine the 
latter, the quantities lost by fire, shipwrecks, and other accidents, must 
be taken into account. The loss from these sources can only be guessed 
at; but adding it to the loss by abrasion, perhaps we shall not be far 
wrong in estimating the whole at 1 per cent. 

It is singular that, in estimating the consumption of gold and silver, 
Mr. Jacob sliould not have made the slightest allusion to the practice 
which has uniformily prevailed in all countries harassed by intestine 
commotions, or exposed to foreign invasion, of burying treasure in the 
earth. Of the hoards so deposited, a very considerable proportion has 
been altogether lost ; and there can be no doubt that this has been one 
of the principal means by which the stock of the precious metals has 
been kept down to its present level. Every one is aware that, during 
the middle ages, treasure trove, or money dug from the ground by chance 
finders, belonged to the Crown, and formed no inconsiderable part of the 
royal revenue of this and other countries. The practice has always pre- 
vailed to a very great extent in the East. — Bernier, Voyage de Mogol, 
Amst. 1710, tome i. p. 209. ; Scrafton on the Government of liindostan, 
p. 16. &c.) But it is not confined to that quarter. Wherever property 
is insecure, it is invariably resorted to. Mr. Wakefield tells us that is 
common in Ireland. — (Account of Ireland, vol. i. p. 593.) It has always 
prevailed to a considerable extent in Russia and France; and in the latter 
during the revolutionary anarchy, immense sums were buried, of which it 
is abundantly certain a large proportion will never be resuscitated. The 
wars and convulsions by which Europe was desolated for more than 20 
years extended the practice to all parts of the Continent ; withdrawing 
in this way from circulation a very considerable part of the increased pro- 
duce of the mines. — (StorcJi, Economic. Politique, tome i. p. 221. Paris, 
1823.) 



Mcculloch on the precious metals. 47i 

3. Ex'portations of the Precious Metals to the East. — It must be well 
known to all our readers, that from the remotest era down to a compara- 
tively late period, bullion has always formed one of the principal and 
most advantageous articles of export to the East. Humboldt estimated 
that, of the entire produce of the American mines at the beginning of 
this century, amounting, as already seen, to 43,-500,000 dollars, no less 
than 25,500,000 were sent to Asia, — 17,500,000 by the Cape of Good 
Hope, 4,000,000 by the Levant, and 4,000,000 through the Russian fron- 
tier. — (JYo2//oelle Espcmoe, tome iii. p. 443.) Latterly however, this im- 
mense drain has not only entirely ceased ; but the cm-rent has, in fucty 
began to set strongly in the opposite direction. Thus it appears that the 
total imports of gold and silver from Europe and North and South Amer- 
ica into Bengal, Madras, and Bombay, during the 3 years with 1830-31, 
amounted to 479,388Z. ; whereas the total exports of the precious metals 
from these 3 presidencies to Europe and America during the same 3 
years were 1,119,973/., being an excess of 640,585/.; so that India, in- 
stead of importing, as formerly, very large quantities of bullion from the 
Western World, supplied, during the period in question, about 213,000/. 
a year to its markets ! — {Pari. Paper, No. 390. Sess. 1833.) The same 
is the case with China. During the year ended the 31st of March, 1832, 
silver was exported from Canton to England to the amount of 1,976,930 
dollars, or 390,000/., besides about as much more exported to India! — 
(See ante, p. 237.) A considerable part of this large export consists of 
native silver, of which there are mines in several provinces. China has 
also mines of gold ; and in some late years her exports of that metal have 
been considerable : she is, however, an importer as well as an exporter 
of gold, having for a lengthened period drawn considerable supplies of 
that metal from Borneo, Celebes, and the Malay peninsula. It appears, 
too, that the efflux of bullion from Russia to China has ceased; and that 
there, also, the current is setting the opposite way. — (Jacob, vol. ii. 320.) 
And if there be any sums still exported by way of the Levant, which is 
doubtful, they are certainly quite inconsiderable. 

4. Influence of the diminished Productiveness of the Mines on Prices. — 
It has been customary in this country to ascribe almost the whole fall 
that has taken place in the price of most commodities since the peace, to 
the diminished supply of bullion from the mines. But we doubt wheth- 
er this circumstances has not been fully counterbalanced by others, and 
whether it has had influence in the way now mentioned. The cessa- 
tion of the drain to the East, even admitting that M. Humboldt has 
somewhat over-rated its amount, would of itself have gone far to coun- 
teract the decreased productiveness of the mines ; but we have just seen 
that it has not merely ceased, but that we are, in fact, deriving considera- 
ble supplies from that very quarter. In addition to this, the greater se- 
curity and tranquillity enjoyed on the Continent since the peace, has 
not only checked that burying of money, formerly so prevalent, but has 
caused the bringing to light of a good many of the subterranean hoards. 
The institution of savings' banks, now so common every where, has also, 



472 McCULLOCH ON THE PRECIOUS METALS. 

no doubt, tended to prevent hoarding, and to bring a good deal of coin 
into circulation, that would otherwise have been locked up. These cir- 
cumstances, coupled with others that might be mentioned, such as the 
cessation of the demand for military chests, the greater employment of 
hills in mercantile transactions, &c., afford the best grounds for doubting 
whether the quantity of the precious metals annually applicable to 
the purposes of circulation be not as great at present, as in 1809 or 
1810. It is further to be observed, that the falling off in the produce 
of the mines has been in silver only ; and that the supply of gold, 
instead of being diminished during the last 10 years, has been very ma- 
terially increased : and as gold is the standard of our currency, it is obvi- 
ously false to affirm that its value has been increased from its being less 
abundant than formerly. .It is contended, indeed, that in estimating the 
value of the precious metals, we cannot separate gold and silver ; and 
that the fall that has taken place in the prices of all commodities since 
1815, proves that the value of money has sustained a corresponding ad- 
vance. But the value of gold is in no way dependent upon, or connect- 
ed with, the value of silver. The exchangeable worth of each metal is 
wholly determined by the peculiar conditions under which it is supplied; 
and the circumstance of gold falling in value when silver is rising, is no 
more to be wondered at, than that lead should fall when iron rises, or 
conversely. Neither is it true that the fall in the value of commodities 
since 1815 has been universal. We admit it has been very general ; but 
we venture to affirm that there is not, without any exception whatever, 
a sino-le commodity that has fallen in price since 1814, the fall of which 
may not be satisfactorily accounted for without reference to the supply 
of gold and silver. — (See ante, p. 75.) Multiplied proofs of what is now 
stated, will be found in various articles throughout this work. And we 
have little doubt that those who investigate the matter with any degree 
of care, will agree with us in thinking, that, even without distinguish- 
ing between gold and silver, were the influence of the decreased produc- 
tiveness of the mines on prices estimated at from 3 to 5 per cent., it 
would be very decidedly beyond the mark. We believeits influence 
has been hardly perceptible. 

5. Probable futiire Supply of Gold and Silver. — Nothing but conjectural 
statements can be made as to the probable future supply of the precious 
metals. On the whole, however, we should think that a very consider- 
able increase may be fairly anticipated. The anarchy in which the new 
South America States have hitherto been involved, will come to a close ;■ 
and, with the increase of population and capital, renewed attention will, 
doubtless, be paid to the mines. It is reasonable also, we think, to an- 
ticipate that th© supplies from the Russian mines will continue to increase. 



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